Introduction

We thank the European Commission for this opportunity to comment on its call for evidence concerning a new framework for standard-essential patents. The International Center for Law and Economics (ICLE) is a nonprofit, nonpartisan research center whose work promotes the use of law & economics methodologies to inform public-policy debates. We believe that intellectually rigorous, data-driven analysis will lead to efficient policy solutions that promote consumer welfare and global economic growth. ICLE’s scholars have written extensively on competition, intellectual property, and consumer-protection policy.

In this comment, we express concerns about the commission’s plan to update the legal framework that underpins standard-essential patent licensing in Europe.

For obvious reasons, the way intellectual property disputes are resolved has tremendous ramifications for firms that operate in standard-reliant industries. Not only do many of the firms in this space derive a large share of their revenue from patents but, perhaps more importantly, the prospect of litigation dictates how firms structure the transfer of intellectual property assets. In simple terms, ineffectual judicial remedies for IP infringements and uncertainty concerning the resolution of IP disputes discourage firms from concluding license agreements in the first place.

The key role that IP plays in these industries should impel policymakers to proceed with caution. By virtually all available metrics, the current system works. The development of innovative technologies through standards development organizations (SDOs) has led to the emergence of some of the most groundbreaking technologies that consumers use today;[1] and recent empirical evidence suggests that many of the alleged ills that have been associated with the overenforcement of intellectual property rights simply fail to materialize in industries that rely on standard-essential patents.[2]

At the same time, “there is no empirical evidence of structural and systematic problems of holdup and royalty stacking affecting standard-essential patent (“SEP”) licensing.”[3] Indeed, “[t]he notion that implementers in such innovation–driven industries are being suffocated by an insurmountable patent royalty stack has turned out to be nothing more than horror fiction.”[4] Yet, without a sound basis, the anti-injunctions approach increasingly espoused by policymakers unnecessarily “adds a layer of additional legal complexity and alters bargaining processes, unduly favoring implementers.”[5]

Licensing negotiations involving complex technologies are legally intricate. It is simply not helpful for a regulatory body to impose a particular vision of licensing negotiations if the goal is more innovation and greater ultimate returns to consumers. Instead, where possible, policy should prefer allowing parties to negotiate at arm’s length and to resolve disputes through courts. In addition to maintaining the sometimes-necessary remedy of injunctive relief against bad-faith implementers, this approach allows courts to explore when injunctive relief is appropriate on a case-by-case basis. Thus, over the course of examining actual cases, courts can refine the standards that determine when an injunctive remedy is inappropriate. Indeed, the very exercise of designing ex ante rules and guidelines to inform F/RAND licensing is antagonistic to optimal policymaking, as judges are far better situated and equipped to make the necessary marginal adjustments to the system.

Against this backdrop, our comments highlight several factors that should counsel the commission to preserve the rules that currently govern SEP-licensing agreements:

For a start, the SEP space is far more complex than many recognize. Critics often assume that collaborative standard development creates significant scope for opportunistic behavior—notably patent holdup. However, the tremendous growth of SEP-reliant industries and market participants’ strong preference for this form of technological development suggest these problems are nowhere near as widespread as many believe.

Second, weakening the protections afforded to SEP holders would have second-order effects that are widely ignored in contemporary policy debates. Weaker SEP protection would notably encourage firms to integrate vertically, rather than to specialize. It would reduce startup companies’ access to capital markets by making it harder to collateralize IP. Curbing existing IP protections would also erode the West’s technological leadership over economies that are heavily reliant on manufacturing and whose policymakers routinely undermine the intellectual property rights of foreign firms.

Finally, critics often overlook the important benefits conferred by existing IP protections. This includes the comparative advantage of injunctions over damages awards, as well as firms’ ability to decide at what level of the value chain royalties will be calculated.

Read the full comments here.

[1] See, e.g., Dirk Auer & Julian Morris, Governing the Patent Commons, 38 CARDOZO ARTS & ENT. L.J. 294 (2020).

[2] See, e.g., Alexander Galetovic, Stephen Haber & Ross Levine, An Empirical Examination of Patent Holdup, 11 J. COMPETITION & ECON. 549 (2015). This is in keeping with general observations about the dynamic nature of intellectual property protections. See, e.g., RONALD A. CASS & KEITH N. HYLTON, LAWS OF CREATION: PROPERTY RIGHTS IN THE WORLD OF IDEAS 42-44 (2013).

[3] Oscar Borgogno & Giuseppe Colangelo, Disentangling the FRAND Conundrum, DEEP-IN Research Paper (Dec. 5, 2019) at 5, available at https://ssrn.com/abstract=3498995.

[4] Richard A. Epstein & Kayvan B. Noroozi, Why Incentives for “Patent Holdout” Threaten to Dismantle FRAND, and Why It Matters, 32 BERKELEY TECH. L.J. 1381, 1411 (2017).

[5] Borgogno & Colangelo, supra note 3, at 5.

 

Abstract

For much of its existence, the academic and policy debate on standards essential patents (SEPs) in mobile telecommunications was driven by the theory of “hold up”— the ability of SEP owners to supposedly extract value well beyond the contribution of their technology to downstream products. This theory of hold up was never empirically validated, and even as a theory, took no account of the non-self-enforcing nature of patents, including SEPs. Injunctive relief for infringement is far from automatic, and litigation is costly and carries asymmetric risks for licensors. In reality, licensors are often able to collect payment only several years after infringement began, may sometimes end up agreeing to rates that are too low to incentivise future investment, and may often be unable to collect payment for all the period of infringement by the implementer. Thus “hold out” by licensees who wish to delay, avoid and reduce payment for their use of SEPs is a potentially greater danger than “hold up.”

If injunctions are difficult to obtain and the eventual remedy for infringement is to take a license and pay damages based on FRAND rates, there is little positive incentive for licensees to take licenses. Instead, it is attractive for licensees to delay and force licensors into litigation. The attractiveness and increasing pervasiveness of such behaviour risks disrupting the “balance” of incentives that is sought by standards development organisations such as the European Telecommunications Standards Institute (ETSI), which has been responsible for shepherding the development of mobile telecommunications standards. The long-term consequences of disrupting this balance will likely be a diminished rate of future innovation, and the potential replacement of a remarkably successful model of “open innovation” by more closed models.

This paper suggests potential correctives to the holdout problem. The correctives involve the strengthening of injunctive relief regimes, and the recognition by Courts and policy-makers (especially antitrust or competition agencies) that achieving the “balance” sought out by ETSI may require limiting or withdrawing the unlimited availability of FRAND licenses for unwilling licensors. Courts and agencies should recognise that SEP holders are only obliged to be prepared to make FRAND licenses available, but also recognise that licensors are not compelled to conclude FRAND licenses with unwilling licensees. At the very least, Courts that are often asked to determine FRAND rates based on evaluating “comparable licenses” can still take measures that avoid putting unwilling licensees on the same footing as those who willingly negotiated “comparable” licenses.

These days, there isn’t a lot of harmony in the world of technology policy. But there is a bright spot of bipartisanship in a section of our airwaves: the 5.9 GHz band. In 2020, the FCC voted unanimously to modernize the rules in this spectrum to allow both Wi-Fi and automotive safety tech to operate. This win-win was celebrated by proponents of car safety and broadband alike. But today the Department of Transportation (DOT) is working on a study that may purposely have been designed to undo this decision. At a time when broadband is more important than ever, we should not undo this popular and bipartisan policy.

Read the full piece here.

Abstract

Between 2016 and 2019, two proposed mergers captured much of the attention and resources of the Department of Justice, Antitrust Division (DOJ). The first was the vertical merger of AT&T Inc. and Time Warner Inc.—a merger of a communications, media, and content distribution company (AT&T) with a content provider (Time Warner). The second was the horizontal merger of Sprint and T-Mobile—a merger of two mobile telephone companies. In general, vertical mergers are reviewed with greater leniency than horizontal mergers because the latter, by definition, eliminate a competitor in the relevant marketplace, which is not a concern with the former. Moreover, merger-specific efficiencies may be easier to demonstrate when a company merges with another company in its own supply chain. Even so, the DOJ challenged the vertical merger of AT&T and Time Warner but permitted (with conditions) the horizontal merger of Sprint and T-Mobile. As this Article sets forth, these seemingly distinct mergers were destined to be linked.

Even though the DOJ unsuccessfully blocked the AT&T-Time Warner merger, the companies are separating again only a few short years after finalizing their merger. The stated reason for the unwinding is arguably linked to the DOJ’s decision to permit the Sprint-T-Mobile merger. The competitive pressure created by the joined mobile telephone company—T-Mobile—has pressured AT&T to invest further in its own mobile telephone business. In other words, the DOJ’s initial fear, that the merged AT&T could use theoretical market power to anticompetitively charge higher consumer prices and raise rivals’ costs in content distribution, was never realized. In contrast, the DOJ’s humility in assessing potential efficiencies for a merged T-Mobile in the growing 5G mobile telephone market is already paying competitive dividends. The tale of these two mergers, therefore, provides interesting insights into modern merger review policies.

Abstract

This paper looks at consumer complaints about student loan lenders and servicers from the Consumer Financial Protection Bureau’s (CFPB’s) consumer complaint database. Using a novel dataset drawn from 30,678 complaints filed against 212 student loan companies, we analyze consumers’ subjective views about whether traditional or fintech student loan lenders and servicers provide a better customer experience. Overall, we find that consumers initiate far fewer complaints against fintech lenders than traditional lenders. But we find that fintech lenders are twenty-eight times more likely than traditional lenders to receive complaints for making confusing or misleading advertisements. Our data also show that complaints against fintech lenders or servicers have not risen in parallel with greater loan volume by those firms, despite the rising number of complaints being filed against traditional lenders and servicers, as those firms continue to dominate the market share of student loan lending and servicing. We consider various reasons for this difference, including whether this means fintech student loan companies are providing a better consumer experience.

Abstract

We propose bolstering the OPT program rather than undermining the United States’ edge in the global race for talent. The US Department of Homeland Security (DHS), within its statutory authority, should introduce the following reforms to the OPT program:

Increase eligible years of work for non–science, technology, engineering, and mathematics (non-STEM) graduates on OPT from one year to three years. Remove employer sponsorship requirements. Allow foreign graduates to work in industries unrelated to their field of study. Eliminate minimum-working-hour requirements for employment authorization. Streamline the I-765 issuance process to ensure that foreign graduates can obtain Employment Authorization Documents (EADs) within three months or less. Exempt OPT participants from the H-1B lottery process if they have acquired at least one year of work experience.

This brief will summarize extant evidence to support this proposal.

For obvious reasons, many scholars, lawyers, and policymakers are thinking hard about whether the Federal Trade Commission (FTC) has authority to promulgate substantive “unfair methods of competition” (UMC) regulations. I first approached this issue a couple of years ago when the FTC asked me to present on the agency’s rulemaking powers. For my presentation, I focused on 1973’s National Petroleum Refiners Association v. FTC and, in particular, whether the U.S. Court of Appeals for the D.C. Circuit correctly held that the FTC has authority to promulgate such rules. I ventured that relying on National Petroleum Refiners would present “litigation risk” for the FTC because the method of statutory interpretation used by the D.C. Circuit is out of step with how courts read statutes today. Richard Pierce, who presented at the same event, was even more blunt…

Read the full piece here.

Abstract

Early in his career, Milton Friedman proposed a coordinated rules-based approach to monetary and fiscal policy, which he then abandoned for a simple constant money growth rule. Both rules were motivated by his goal of long-run economic stability and his belief that discretionary policy would be destabilizing. What prompted Friedman to change his view was his interpretation of empirical evidence showing that monetary policy dominates fiscal policy in determining macroeconomic outcomes, rendering fiscal policy ineffective.

ICLE Editor-in-Chief R.J. Lehmann joined the Heard Tell Show to discuss Elon Musk’s bid to buy Twitter, shareholder rights, platform moderation, and regulatory review of the transaction. The full episode is embedded below.