Friday, April 9, 2021
Dan Spulber, Northwestern
Major technological changes driving the Fourth Industrial Revolution combine complementary inventions to form complex innovations. These include the Internet of Things (IoT), 5G mobile communications, artificial intelligence (AI), cloud computing, data analytics, autonomous vehicles, additive manufacturing, and augmented/virtual reality. This article shows that negotiation of patent license contracts fully eliminates many influential antitrust concerns about complementary inventions, including “royalty stacking,” “SEP hold-up,” “patent thickets,” “blocking patents,” the “Tragedy of the Anti-Commons,” and “regulatory patent pools.” Negotiation of patent license contracts implies that total royalties will be less than those charged by a bundling monopoly. Negotiation of patent license contracts in a competitive market avoids distortions from royalties per unit of output and eliminates the multiple-marginalization problem. Negotiation generates contract provisions consistent with contingent royalty arrangements. Negotiation also has important implications for antitrust policy toward patent pools. The analysis shows that patent pools serve to mitigate transaction costs rather than to regulate total royalties. This article suggests that antitrust policy makers should continue to be neutral between negotiation of patent license contracts and patent pools. This article supports the view that negotiation is pro-competitive as expressed by the 2017 United States Department of Justice and the Federal Trade Commission Antitrust Guidelines for the Licensing of Intellectual Property. Property.