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Archive for July 22nd, 2015

Keynes and standard-essential patents (or Huawei as the ultimate triumph of an economist)

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Keynes

[Alfonso posted a great entry on Huawei the other day. There is not much to add to it, but I could not resist preparing a ‘B-side’ on more general issues]

Keynes famously observed that ‘the ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else’. I was reminded of this sentence (and what follows) when reading Huawei. Formal economic analysis is nowhere to be found in the judgment. Yet, it is impossible to make sense of it without taking into account the work of economists who have speculated over the past decade about the consequences of the use of injunctions by the holders of standard-essential patents (‘SEPs’).

The idea that hold-up and exclusion are a concern in the context of standard-setting has become very popular, so much so that the Court did not even see the need to discuss whether there is theoretical and empirical support for it. It is presented in Huawei as a given fact, in the same way that cartels are simply assumed to be harmful for consumers and society at large. You know that economic theories have won the day when law and policy-makers do not even see the point of discussing their validity. You know you are really influential when people do not bother to cite you anymore. From this perspective, Huawei represents an enormous victory for the economists that first advanced the assumptions informing the ruling.

Yet, the idea that patent hold-up is (i) a pervasive problem that (ii) requires intervention under competition law is hotly disputed. I have not followed this debate as closely as others, but it seems clear to me that there is no consensus around it. Many articles published in recent years claim that remedial action to limit the ability of SEP holders to use injunctions is based on a assumptions that do not necessarily reflect the actual operation of standard-setting organisations, of negotiations between developers and implementers or of intellectual property regimes.

If there is something I regret from AG Wathelet’s opinion, is that he did not see the need to engage with these debates (and an AG’s opinion is an ideal forum to do so). In line with the position broadly endorsed by the Commission, he simply took it as given that the use of injunctions by an SEP holder may amount to an abuse of a dominant position. This position is not necessarily wrong and it may well be right. My point here is that it is not self-evident and that a legal test has been crafted without considering the assumptions underpinning it. As a result, is not certain that the ruling in Huawei is the one that best reflects the available knowledge.

I guess the broader question raised by the judgment (and the one that I find really interesting, and I would love to read your views on it) is whether intervention under competition law (as opposed to deference to intellectual property regimes) is justified when there is no consensus about whether, why and how often a given practice is anticompetitive. We know from experience that, when conduct is not yet well understood, and when there are two sides to the story (as is true here), the risk of errors and over-enforcement is very high.

This debate is similar in many ways to that around net neutrality, which I have followed more closely and about which I said a word earlier this month. It is accepted as self-evident that net neutrality is a good thing. This, again, represents a great victory for the companies and activists advocating for the adoption or strengthening of such rules. Unfortunately (and this is the source of my frustrations), this victory is not the result of their ability to advance cogent and convincing evidence in support of their views, but of powerful slogans and lobbying.

Written by Pablo Ibanez Colomo

22 July 2015 at 1:52 pm

Posted in Uncategorized