Antitrust, Intellectual Property, and Standard Setting Organizations

The role of institutions in mediating the use of intellectual property rights has long been neglected in debates over the economics of intellectual property. In a path-breaking work, Rob Merges studied what he calls "collective rights organizations," industry groups that collect intellectual property rights from owners and license them as a package. Merges finds that these organizations ease some of the tensions created by strong intellectual property rights by allowing industries to bargain from a property rule into a liability rule. Collective rights organizations thus play a valuable role in facilitating transactions in intellectual property rights. There is another sort of organization that mediates between intellectual property owners and users, however. Standard-setting organizations (SSOs) regularly encounter situations in which one or more companies claim to own proprietary rights that cover a proposed industry standard. The industry cannot adopt the standard without the permission of the intellectual property owner (or owners). How SSOs respond to those who assert intellectual property rights is critically important. Whether or not private companies retain intellectual property rights in group standards will determine whether a standard is "open" or "closed." It will determine who can sell compliant products, and it may well influence whether the standard adopted in the market is one chosen by a group or one offered by a single company. SSO rules governing intellectual property rights will also affect how standards change as technology improves. To give just one example, the Internet runs on a set of open, non-proprietary protocols in large part because the Internet Engineering Task Force (IETF), the SSO that controls the TCP and IP protocols, had a long-standing policy that it would not adopt proprietary standards. That policy has now changed; it remains to be seen whether the open nature of the Internet will change with it. But in any event, the magnitude of the stakes should be clear. Given the importance of SSO rules governing intellectual property rights, there has been surprisingly little treatment of SSOs or their intellectual property rules in the legal literature. My aim in this article is to fill that void. To do so, I have surveyed 1 © 2000 Mark A. Lemley. 2 Professor of Law, University of California at Berkeley (Boalt Hall); of counsel, Fish & Richardson PC. Thanks to Ryan Garcia for research assistance, and to the Open Group, Sun Microsystems, Erv Basinski and Carl Cargill for helping me navigate the thicket of standard-setting organizations in computer networking. the intellectual property policies of dozens of SSOs, primarily but not exclusively in the computer networking and telecommunications industries. In Part I, I provide some background on SSOs themselves, and discuss the value of group standard setting in network markets. In Part II, I discuss my empirical research, which demonstrates a remarkable diversity among SSOs in how they treat intellectual property. In Part III, I consider the constraints the antitrust laws place on SSOs in general, and on their adoption of intellectual property policies in particular. In Part IV, I analyze a host of unresolved legal issues relating to the applicability and enforcement of such intellectual property policies. Finally, in Part V I offer recommendations to scholars, policy-makers, companies, and SSOs for dealing with SSO intellectual property policies. In the end, I hope to convince the reader of four things. First, SSO rules governing intellectual property fundamentally change the way in which we must approach the study of intellectual property. It is not enough to consider IP rights in a vacuum; we must consider them as they are actually used in practice. And that means considering how SSO rules affect IP incentives. Second, there is a remarkable diversity among SSOs in how they treat IP rights. This diversity is largely accidental, and does not reflect conscious competition between different policies. Third, antitrust law is not well designed to take account of the modern role of SSOs. Antitrust rules may unduly restrict SSOs even when those organizations are serving procompetitive ends. Fourth, the enforcement of SSO IP rules presents a number of important but unresolved problems of contract and intellectual property law. I offer some suggestions for how to think about these problems in the final part of this