Antitrust Overreach: Undoing Cooperative Standardization in the Digital Economy

Abstract

Information technology markets in general and wireless communications markets, in particular, rely on standardization mechanisms to develop interoperable devices for data processing, storage, and transmission. From 2G through the emergent 5G standard, wireless communications markets have largely achieved standardization through cooperative multi-firm arrangements that likely outperform the historically dominant alternatives of government monopoly, which is subject to informational deficits and regulatory capture, and private monopoly, which suffers from pricing and other distortions inherent to protected market positions. This cooperative process has successfully relied on three key legal elements: reasonably secure patents, quasi-contractual licensing commitments supplemented by reputation effects, and targeted application of antitrust safeguards against collusion risk. Over approximately the past decade, antitrust agencies and courts in the U.S., Europe and Asia have taken actions that threaten this legal infrastructure by limiting patentees’ ability to seek injunctive relief, adopting rigid understandings of “fair, reasonable and non-discriminatory” licensing principles, and addressing collusion risk among licensors-innovators while overlooking (and even exacerbating) collusion risk among licensees-implementers. These judicial and regulatory interventions in IP licensing markets shift value from firms and economies that specialize in generating innovations to firms and economies that specialize in integrating innovations into end-user products. These entity-level and country-level redistributive effects are illustrated by lobbying activities in the wireless communications markets and antitrust actions against IP licensors in jurisdictions that have substantial net IP deficits and are principally populated by IP licensees. Current antitrust policy promotes producers’ narrow interests in lower input costs while ignoring the broader public interest in preserving the cooperative standardization structures that have supported innovation and commercialization in the digital economy.