IPRs and competition in standard setting: objectives and tensions

Abstract

Competition and intellectual property rights (IPRs) are both necessary for a market to work efficiently and to promote consumer welfare. The tension between them is only apparent. Properly applied, intellectual property rules define a legal framework which allows undertakings to profit from their inventions. This in turn encourages competition among firms and enhances dynamic efficiency, to the benefit of consumer welfare. From this perspective, IPRs and competition generate a fruitful symbiosis.

Standard setting represents one of the fields where the interaction between competition law and IPRs clearly comes to light. The collaborative goal of standard setting organizations (SSOs) is to adopt and promote standards that either do not conflict with anyone’s right or, if they do, are developed under condition that patents are licensed under defined terms. On the one hand, patents are important to promote innovation, as they confer exclusive rights to the inventors. On the other, standards are paramount for enhancing the interoperability of products, expanding network externalities, and facilitating the dissemination of knowledge. Conflicts between IP and competition laws may arise in case IPRs owners in standardization contexts overexploit the rights they have been granted. This may lead to the hold-up problem, which represents both a private and public concern. How to strike, then, the optimal balance between IPRs and industry standards? By answering the question, this work aims at filling a gap in the academic literature, which does not appear so far to have attempted an in-depth assessment of the right equilibrium between investment incentives and competition goals in standard setting. Any abuse of market power may harm significantly consumer well-being. At the same time, any form of control of market power should preserve the incentives of firms to invest in the market. The crucial aim, hence, is to define the optimal balance in order to avoid risks of significant losses in consumer and societal welfare.

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