Setting Compatibility Standards: Cooperation or Collusion?

This paper describes the process by which firms cooperate to establish product compatibility and interface standards, and studies the impact such standards have on market competition. Special emphasis is given to the treatment of intellectual property rights in the standard-setting context. Based on this economic analysis, the paper offers some general suggestions for the proper antitrust treatment of cooperation to set standards, including the use of cross-licenses and patent pools to promote new product standards. By and large, U.S. antitrust law has not stood in the way of beneficial standard setting or cross-licensing. ********************* Prepared for presentation at “Intellectual Products: Novel Claims to Protections and Their Boundaries,” Conference of the Engelberg Center on Innovation Law and Policy, La Pietra, Italy, June 25-28, 1998. Comments and case citations to cases are welcomed; please address suggestions to [email protected]. This paper is available at http://haas.berkeley.edu/~shapiro/standards.pdf. Portions of this paper rely heavily on my joint paper with my colleague Michael L. Katz, “Antitrust in Software Markets,” which can be obtained at http://haas.berkeley.edu/~shapiro/software.pdf. This paper is also closely related to my paper “Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting,” to be published in Innovation Policy and the Economy, Adam Jaffe, Joshua Lerner, and Scott Stern, eds., National Bureau of Economic Research, available at http://haas.berkeley.edu/~shapiro/thicket.pdf. This paper also draws on Chapter 8 of my book with Hal R. Varian, Information Rules: A Strategic Guide to the Network Economy; see www.inforules.com.