Competing Away Market Power? An Economic Assessment of Ex Ante Auctions in Standard Setting

Abstract

A. INTRODUCTION The adoption of proprietary technologies by standard-setting organisations (SSOs) is often necessary to ensure that the resulting standard provides the greatest possible value to its users and, therefore, to guarantee the success of the standardisation process. Nonetheless, some claim that the selection of proprietary technologies as standards may also create significant market power, generate returns in excess of those needed to remunerate innovation, distort competition and restrict the dissemination of new and superior technologies. 1 Concerns of this sort are behind the discussions of “patent ambush”, where a patent holder fails to properly disclose its patents to an SSO during a standard’s development, but emerges seeking royalties after the industry is committed to implementing. Both the US and European competition agencies have brought patent ambush cases, most recently the investigations of Rambus and its dealings with the SSO JEDEC over computer memory standard. 2 At the heart of these matters is the concern over ill-gotten market power, achieved through the standard-setting process. A necessary (but not sufficient) condition for the creation of ex post market power (ie attributable to standard selection) is the absence of alternative technologies that can be substituted for