Wednesday, March 31, 2010

Assessing the Link between Standard Setting and Market Power

Posted by D. Daniel Sokol

Anne Layne-Farrar, LECG and A. Jorge Padilla, LECG explain Assessing the Link between Standard Setting and Market Power.

ABSTRACT: Some policymakers, courts, and academics have expressed concerns that when a firm’s patents are incorporated into a standard, the inclusion can create market power for the patent holders that can then be abused when the standard is commercialized. This paper offers a critical assessment of that proposition. Our analysis has two aims: first, to better understand exactly how an SSO might confer market power on included patents and second, to move closer to an empirical understanding of the market power proposition. We create a dataset of patents named to voluntary standard setting organizations, as well as the patent pools that sometimes develop around such standards, with the goal of providing some suggestive measurements of the effect standardization might have on market power. As it is extremely difficult to measure market power directly, we rely on proxies capturing a patent’s importance or value. We find that some SSOs do appear to enhance some included patents’ importance, but most do not. Moreover, the effects change over time, across standards, and across patents. Thus, we conclude that, on average, inclusion in an SSO tends to enhance a patent’s value, but for any particular patent named to a particular standard a positive effect is not inevitable. Instead, a broad range of effects is possible, some even negative but most equal to zero.

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