PATENT HOLDUP AND OLIGOPSONISTIC COLLUSION IN STANDARD-SETTING ORGANIZATIONS

Current controversies over patent policy place standard-settingorganizations (SSOs) on a collision course with antitrust law.Recent theoretical research conjectures that, in an SSO, patentowners can "hold up" patent users in the sense of demandinghigh royalties for a patented input after the SSO has adoptedthe patented technology as an industry standard and manufacturerswithin the SSO have incurred sunk costs to design end productsthat incorporate that standard. Consistent with this conjecture,actual SSOs have recently sought no-action letters from theAntitrust Division for a variety of amendments to SSO rulesthat would require or request, at the time a standard is underconsideration, the ex ante disclosure by the patent owner ofthe maximum royalty that the patent owner would charge underthe regime of fair, reasonable, and nondiscriminatory licensing.This price information—which is characterized as the "cost"of the patented input—would, under at least one recentSSO rule modification, be a permissible topic for potentialusers of the patent to discuss when deciding whether to selectit in lieu of some alternative standard. This exchange of informationamong horizontal competitors would occur ostensibly becausethe cost of the patented technology had been characterized assimply one more technical attribute of the standard to be set,albeit an important technical attribute. The Antitrust Divisionand the Federal Trade Commission have jointly stated that suchdiscussion, by prospective buyers who are competitors in thedownstream market, of the price of a patented invention thatmight become part of an industry standard should be subjectto antitrust scrutiny under the rule of reason rather than therule of per se illegality. The rationale that the antitrustagencies offer for applying the rule of reason to such conductis that such horizontal collaboration might avert patent holdup.The Antitrust Modernization Commission (AMC) similarly endorsedthe view that rule-of-reason analysis is appropriate for exante discussion of royalty terms by competing buyers of patentedtechnology. This rule-of-reason approach, however, is problematicbecause it conflicts with both the body of economic researchon bidder collusion and with the antitrust jurisprudence oninformation exchange and facilitation of collusion. Put differently,because of their concern over the possibility of patent holdup,the U.S. antitrust agencies and the AMC in effect have indicatedthat they may be willing in at least some circumstances to forgoenforcement actions against practices that facilitate oligopsonisticcollusion by encouraging the ex ante exchange of informationamong competitors concerning the price to be paid for a patentedinput as an implicit condition of those competitors' endorsementof that particular patented technology for adoption in the industrystandard. However, neither the proponents of these SSO policiesnor the antitrust agencies and the AMC have offered any theoreticalor empirical foundation for their implicit assumption that theexpected social cost of patent holdup exceeds the expected socialcost of oligopsonistic collusion. This conclusion does not changeeven if one conjectures that such collusion will benefit consumersby enabling licensees to pass through royalty reductions intheir pricing of the downstream product incorporating the patentedtechnology. Proper economic evaluation of the plausibility ofthe pass-through conjecture will require information about thecalculation of royalty payments; the demand and supply elasticitiesfacing the licensees; and the structure of any industries furtherdownstream between the manufacturer and the final consumer.Consequently, the magnitude of this effect will likely be amatter of empirical dispute in every case. Moreover, such ajustification for tolerating horizontal price fixing finds nosupport in antitrust jurisprudence. Given the analytical andfactual uncertainty over whether patent holdup is a seriousproblem, it is foreseeable that antitrust questions of firstimpression will arise and affect a wide range of high-technologyindustries that rely on SSOs. However, there is no indicationthat scholars and policy makers have seriously considered whetheroligopsonistic collusion in SSOs is a larger problem than patentholdup.     

Anticompetitive Employment

Scholars, antitrust agencies, and policy makers have historically paid little attention to anticompetitive practices in labor markets. This was largely due a misconception that antitrust law is meant to govern conventional markets in which goods and services trade, rather than govern labor markets. Antitrust law may also offer a poor remedy to redress employers who enter no-poaching agreements or otherwise impair competition. The primary tension involves antitrust's purpose, which is to promote “consumer welfare.” To identify whether conduct eroded consumer welfare, courts tend to scrutinize whether prices increased. But here, lessening wages can enable firms to sell goods at cheaper prices, benefiting consumers. Another issue is that the typical restraint affects only a smattering of workers instead of lessening wages throughout the greater market. This article uses empirical analyses to show that antitrust should promote labor's welfare as it does consumer welfare, and it argues that enforcement must condemn labor cartels as per se illegal. The research demonstrates that labor cartels are more pernicious than restraints in product markets, as employers can lessen wages with less effort than in product markets. Antitrust should even proscribe no-poaching agreements formed for a legitimate purpose (e.g., to protect trade secrets) because employers could have achieved the same goals using less coercive means; the noncompete agreement, at least, provides labor with a semblance of notice and bargaining power without drawing antitrust scrutiny. The prohibition of labor cartels would thus promote competition and consumer welfare, especially in minimum wage labor markets.     

The Jean Mpambara Case: Outlining "Culpable Omissions" in International Criminal Law

The Trial Chamber of the International Criminal Tribunal forRwanda, through its judgment in Jean Mpambara case, outlinedthe significance of culpable omissions, outlining three broadoffences under which it could be used as evidence. While itis clear that an omission may be considered as evidence of aidingand abetting or joint criminal enterprise, it is still not clearwhether omission of failure of duty to prevent or punish willbe considered as part of Article 6(1) of the statute as doneby the other trial chambers,¹     

A primer on US antitrust claims against patentees under Walker Process

Legal context: In the wake of two recent cases from the Federal Circuit onthe subject, this article provides an introduction to the WalkerProcess doctrine under US law. Under the doctrine, a patenteewho knowingly enforces a patent procured by intentional fraudon the patent office may lose its immunity to antitrust claims,should it act to enforce its patent. Key points: Walker Process fraud refers to a knowing and deliberate fraudperpetrated on the patent office as opposed to mere acts ofinequitable conduct. Proving that a patent applicant engagedin Walker Process fraud does not by itself prove liability foran antitrust violation. The accused infringer must still provethe individual elements of an antitrust claim. Antitrust claimsbased on Walker Process fraud require significant time and resourcesto litigate. Practical significance: With the allure of mandatory treble damages and attorney's fees,antitrust claims based on Walker Process fraud can serve asa potent counterclaim for an accused infringer's arsenal. Butthe legal requirements and resources needed to successfullylitigate these claims to a conclusion may temper their effectivenessfor the typical patent-infringement suit.     

Construction of contracts and the role of 'entire agreement' clauses

The first 150 words of the full text of this article appear below. Key points

• The construction of commercial contracts has seena shift from a strict to a liberal philosophy of constructionand this has had an impact on commercial agreements and actors.
• Thereis an ongoing debate concerning the widening background or matrixevidence to include prior negotiations, reflecting the desireof parties to insulate commercial agreements from collateralterm arguments or other recourse to wider materials.
• This hasin part led to the emergence of ‘entire agreement’and ‘non-reliance’ clauses.
• This article considersthe construction of such clauses and whether such clauses takeeffect through construction or estoppel reasoning. It also looksat the merits of estoppel by representation and ‘estoppelby contract’, the impact of Unfair Contract Terms Act1977 and Misrepresentation Act 1967, and the effect of waiverof clause.

  The law of contract is fundamental to all markets, and participantsin wholesale markets are wedded to the . . . [Full Text of this Article]

To What Extent are Cost Savings Passed on to Consumers? An Oligopoly Approach

Competition policy often asks whether a “fair share” of the benefits from cost savings obtained through mergers or agreements is passed on to the consumers. We assess the factorsthat determine cost pass-on in some partial-equilibrium oligopoly models, and show that, although the strength of the pass-on varies from one situation to another, there are some rules of thumb that give a first approximation of the pass-on rate. We also show that, contrary to common belief and to what is written about the subject in the European Commission's guidelines on the application of Article 81(3), in most circumstances cost pass-on does not depend on the price elasticity of demand nor on the market share of the cost saver, and that with competition the pass-on of firm-specific cost savings is weaker than without. JEL Classification: C72 (non-cooperative games), D43 (oligopoly), L40 (antitrust policy)     

Exclusion payments in patent settlements: a legal and economic perspective

Legal context. The application of antitrust law to assess settlementsof patent litigation raises difficult issues concerning theappropriate balance of patent law and competition policy. Recentprivate and public invocations of US antitrust law to challengesettlement agreements covering pharmaceutical patents have broughtthese issues to the forefront. The agreements share the commonfeature of an ‘exclusion payment’ from a brand-namedrug manufacturer (the patentee) to a generic drug manufacturer(the accused infringer) in exchange for a promise by the genericcompany to refrain from marketing its product for some time.US federal courts that have examined these agreements have variedin their approach and conclusions regarding the appropriateantitrust analysis to be applied to these settlements. Key points. This article argues that informed antitrust analysisof such agreements must take due note of the ‘probabilistic’nature of patent property rights. Practical significance. The article concludes that exclusionpayments fall outside the scope of a patent's exclusionary scopeand thus are subject to antitrust scrutiny. It demonstratesthat barring anticompetitive exclusion payments in settlementnegotiation prevents collusive bargains that harm consumer welfarewithout discouraging efficient settlements.     

Clear, Simple, and Precise Legislative Drafting: How Does a European Community Directive Fare?

In 2001, Martin Cutts redrafted Toy-Safety Directive 88/378/EEC¹in plain language. He criticized the language of that Directiveas being archaic legalese.² He added that Directives, as a whole,were poorly drafted.³ The European Commissions Legal Servicerejected his criticisms. It stated that it had published theEuropean Commission’s plain language guidelines⁴ afterDirective 88/378/EEC had been drafted. In a previous articlein the Statute Law Review,⁵ Butt and Castle’s⁶ plain languageguidelines were explicated using examples from Directive 2002/2/EC.⁷In this article, their guidelines are applied to the whole ofthat Directive to see if its language is ‘clear, simple,and precise’.⁸ The criticisms made in the previous article,⁹combined with those made in this article, suggest that the draftersof Directive 2002/2/EC¹⁰ have not yet mastered the skill ofwriting in ‘clear, simple, and precise’ language.     

The ongoing design duty in Universal Music Australia Pty Ltd v Sharman License Holdings Ltd Casting the scope of copyright infringement even wider

The Australian Federal Court case of Universal Music AustraliaPty Ltd v Sharman License Holdings Ltd (‘Sharman’)¹is the latest in a series of peer-to-peer (P2P) filesharingcases from various jurisdictions that has found the softwaredistributor/technology provider liable for copyright infringement.² Sharman followed a few months after the groundbreaking US SupremeCourt case of MGM Studios v Grokster Ltd ³ (‘Grokster’)that had acknowledged the Sony safe harbour for technology providersbut also introduced an inducement of infringement doctrine todeal with reprehensible conduct of infringers. While both cases involved similar technology and shared a numberof similarities on the facts and legal principles⁴, a closerexamination of Sharman shows that the net of copyright infringementin P2P filesharing is cast wider than that in Grokster. The effect of Sharman is an increased burden on the technologyprovider and the potentially tremendous consequences on innovationdue to the lack of a clear safe harbour as well as the wideningof the design obligation.     

Was the Antitrust Action that Broke Up the Movie Studios Good for the Movies? Evidence from the Stock Market

The Paramount antitrust litigation was a series of eight actionsbrought by the Department of Justice (DOJ) beginning in 1938and ending in 1949 against the major motion picture studios.In the early cases the DOJ succeeded in changing industry contracts,but it took a decade of litigation to accomplish what the DOJwanted, which was to break up the studios and force them tosell their theater chains. We use stock market evidence to evaluatethe impact of events in the Paramount litigation on firm value.By the stock market's assessment, the Supreme Court decisionwas the major event. But the impact of this and other decisionson integrated and nonintegrated defendants, and on a nondefendant,does not support the view that the courts dismantled a successfulmonopoly; indeed, the contrary may be true.     

Pepper v Hart: A Footnote to Professor Vogenauer's Reply to Lord Steyn

This Note is intended to stand as a short supplement to thecompelling article by Stefan Vogenauer entitled, ‘A Retreatfrom Pepper v Hart? A Reply to Lord Steyn’ published inthe Journal at the end of 2005.¹ In his article, Professor Vogenauercalls in question the argument advanced by Lord Steyn in hisarticle in the Journal, entitled ‘Pepper v Hart: A Re-examination’.²In that article, Lord Steyn called for a retreat from the decisionof the House of Lords in Pepper v Hart³ concerning the circumstancesin which reference may be made to Hansard as an aid to statutoryconstruction and for a reinterpretation of the decision in linewith a theory that a Minister speaking in Parliament who givesan explanation of the meaning or effect of a clause in a Billshould be taken to create a binding legitimate expectation thatthe executive will apply the provision, once enacted, in thatsense. In this Note, I express my agreement with Professor Vogenauer’sargument, and seek to support it with some additional pointsunder three heads: (1) the proper interpretation of Pepper vHart and its status as authority; (2) the basis in principlefor adhering to that interpretation; and (3) conceptual difficultiesattached to Lord Steyn’s legitimate expectation thesis.     

The Scots Statute Style and Substance

New or renewed legislatures afford opportunities for reassessingold legislatures, and introducing new and improved forms oflegislative composition. Thus the North American experience,derived from the breakaway Colonies, came down heavily againstreferential legislation, the Australian and New Zealand experienceimplemented many Benthamite reforms ahead of the Old Country,and the tabula rasa afforded generally by Colonial and Commonwealthlegislation at first enabled, and eventually enforced on itsparent legislature, an explicit and consistently adhered tosystem of textual amendment. In view of the opportunities affordedby Scottish Devolution, what innovations may we expect of thenew Scottish statute? Thanks to the earlier work of Coode,¹to the continuing surveillance of the Statute Law Society,²to the committed enthusiasm of parliamentary counsel such asDriedger,³ Dale,⁴ and Bennion,⁵ and especially to the seminalwork of linguistic analysts such as Plowden,⁶ Mellinkoff,⁷ Frye,⁸and Bowers,⁹ new theories, practices, forms, and precedentsabound as never before for statute law. Nevertheless, thereare also questions of tradition, culture, and national identityat issue—especially for a restored or reborn legislaturesuch as the present Scottish Parliament.¹⁰ This paper examinessome of the issues, both in terms of legislative style and legislativesubstance, which pertain to the new Scottish statute.     

Can We Protect How We Do What We Do? A Consideration of Business Method Patents in Australia and Europe

In the long history of monopolies, business method patents area novel and recent edition. In the Digital Age, where time ismoney and speed is everything, innovative methods for undertakingbusiness are as important to a business as the products or servicesit provides to its clients. In recent years several reviews,conducted in both Australia and internationally,⁴ have questionedthe appropriateness of patenting business methods. This paperreviews the availability of business method patents in Australiain light of the 2006 decision of the Full Court of the FederalCourt in Grant v Commissioner of Patents,⁵ which confirmed theneed in Australia for a ‘useful product’ to issuefrom the working of a method (business or otherwise) in orderfor the method to be patentable. This paper will review argumentsboth criticising and defending business method patents and considerwhether business methods warrant special treatment.     

THE CUSTOMER IS SOMETIMES RIGHT: THE ROLE OF CUSTOMER VIEWS IN MERGER INVESTIGATIONS

Antitrust enforcement officials and practitioners generallyagree that customers should have a prominent role in the mergerreview process. The question of the appropriate level of reliancethat competition authorities and courts should give to customertestimony has been the subject of considerable debate sincethe Arch Coal and Oracle decisions. This paper contains a comprehensivediscussion of the use of customer testimony throughout the U.S.merger review process, from the initial merger notificationfiling to injunction proceedings in federal court. We discussthe benefits from and problems with the use of customer testimony,including how these problems have led to litigation losses forthe U.S. antitrust authorities. What is the appropriate roleof customer testimony and when is it most probative? We contendthat customers can provide investigators and judges with informationregarding several relevant issues in an acquisition, includingindustry structure, geographic and product demand substitution,and acceptance of potential market entrants. In contrast, customerswill have considerably less information relevant to the likelihoodof entry, the extent of any merger-specific efficiencies, andthe validity of a failing firm defense. They will almost neverbe qualified to offer legal conclusions, such as the propermarket definition or likely competitive effects of a proposedmerger. We conclude that courts have generally remained consistentin their reliance on customer testimony, including in the ArchCoal and Oracle cases, and that customer testimony, despiteits limitations, should and will continue to be important ateach stage of the merger review process.     

A case of mistaken identity: The wrongful classification of Islamic marriage contracts as premarital agreements in New York

New York precedent has mischaracterized Islamic marriage contracts, or nikah agreements, as premarital agreements. Nikah agreements are not premarital agreements; they are contracts. This mischaracterization has subjected nikah agreements to the acknowledgement requirement codified in N.Y. DRL § 236(B)(3) which has incorrectly been used to strike down valid contracts which Islamic litigants rely on. To prevent the effects of this mischaracterization, this Note suggests to New York appellate courts that a recharacterization of these agreements as contracts would prevent further confusion amongst the lower courts and allow for clearer, more uniform decisions.     

Freakonomics: Scholarship in the Service of Storytelling

Freakonomics: A Rogue Economist Explores the Hidden Side ofEverything by Steven D. Levitt and Stephen J. Dubner is certainlypopular. Indeed, my search for something comparable took meback more than 120 years.¹ Even with the uncertainty about whatconstitutes a best seller, it is clear that the book has reacheda huge audience, especially for a book about "economics." AsI write this, it has been on the New York Times best-sellerlist for 46 weeks, and having started on the Publisher’sWeekly Hardcover Nonfiction best-seller list in the 12th positionon April 25, 2005, it has hovered in the top ten thereafter.Moreover, as reported on the Freakonomics web site, the bookhas garnered a large international audience, and the book ison various "best of" lists. Levitt and Dubner have sought abroad and diverse audience for their collection of stories:Levitt has been on "The 700 Club" (a talk show by conservativebusinessman and religious broadcaster Pat Robertson) and "TheDaily Show with Jon Stewart" (a center–left parody ofthe news and news reporting) among other places. Both the authorswrite a column for the New York Times Magazine as well as participatein an active blog (just navigate from the book’s web siteto the URL http://www.freakonomics.com, where, among other things,they respond to a large number of readers’ inquiries²).The book comes complete with more than 20(!) pages of referencesand citations as diverse as a radio talk show caller’sunverified claim that her niece was named "Shithead" (pronouncedSHUH-teed) as well as Kenneth Arrow’s "A Theory of Discrimination"and includes a two-and-a-half page tabulation of average yearsof mother’s education by child’s first name. Theextensive footnotes should not mislead: Freakonomics does nottake its subjects very seriously. In Freakonomics, Levitt’sscholarship and the scholarship of others are put in the serviceof telling a "good story" rather than the other way around.Indeed, if the many reviews of the book are any guide, manyfind the book "entertaining" even if they felt that "Levitt’sonly real message is to encourage confrontational questions"(Berg, 2005). One reviewer found the stories so compelling thathe went so far as to suggest that "criticizing Freakonomicswould be like criticizing a hot fudge sundae" (Landsburg, 2005).     

Assessing the Credibility of Refugee Applicants: A Judicial Perspective

The principal responsibility of refugee decision makers is todetermine those to whom refugee protection is owed. The mannerin which these decisions are to be made in Australia is thesubject of ongoing debate. However, that debate is not the subjectof this paper. The focus of this paper is on the credibilityassessment of refugee applicants and its principal purpose isinstructive. It is my hope that it will enhance the credibilityof credibility assessment within existing processes. Its secondarypurpose is to provide a basis from which policy makers may considerlegislative and other procedural change. It has been suggested that the ‘devil is in the detail’in refugee decision making. Working in a common law country,Australian refugee decision makers are afforded the (often binding)benefit of extensive judicial review of the refugee determinationprocess.¹ Thus, for Australian decision makers, the ‘devilin the detail’ is often to be found in a plethora of bindinglegal precedent. Accordingly, while the first part of this paperdiscusses selected matters which have facilitated the assessmentof the credibility of refugee applicants in Australia, as oneof the most authoritative domestic sources available, the secondpart of this paper principally focuses on the expressed viewsof Australian courts after examining credibility findings indecisions of the Refugee Review Tribunal.²     

Jesting at scars that never felt a wound: The US Supreme Court's new doctrine of licensee standing without breach

Until recently, it was assumed that patent licensees in compliancewith terms of their licence agreements would lack ‘standing’to sue their licensors, but in MedImmune v Genentech, the SupremeCourt of the United States held that federal courts in the UShave jurisdiction over declaratory judgment actions by patentlicensees asserting the invalidity, unenforceability, or non-infringementof a licensed patent, even where the licensee is in full compliancewith the licence agreement.     

Profit Neutrality in Licensing: The Boundary Between Antitrust Law and Patent Law

We address the patent/antitrust conflict in licensing and developthree guiding principles for deciding acceptable terms of license.Profit neutrality holds that patent rewards should not dependon the rightholder’s ability to work the patent himself.Derived reward holds that the patentholder’s profits shouldbe earned, if at all, from the social value created by the invention.Minimalism holds that licenses should not be more restrictivethan necessary to achieve neutrality. We argue that these principlesare economically sound and rationalize some key decisions ofthe twentieth century such as General Electric and Line Material.     

Which law applies? A reply to Professor Torremans

The first 150 words of the full text of this article appear below.

‘A book may be good for nothing; or there may be onlyone thing in it worth knowing; are we to read it all through?’(Samuel Johnson) This section is dedicated to the review ofideas, articles, books, films and other media. It will includereplies (and rejoinders) to articles, the evaluation of newideas or proposals, and reviews of books and articles both directlyand indirectly related to intellectual property law.

In a recent article,¹ Professor Torremans argues that the countryof origin (sometimes called the lex originis) should be thelaw applied to authorship and ownership of copyright.² There is no doubt that several countries do apply the countryof origin to initial ownership and authorship of copyright works.Citing both the Austrian and Belgian Codes on Private InternationalLaw as examples,³ Professor Torremans also mentions the decisionof the US Second Circuit of Appeals in . . . [Full Text of this Article]