Judging Monopolistic Pricing: F/RAND and Antitrust Injury

Abstract

In a 2013 opinion in Microsoft v. Motorola, Judge James Robart calculated “reasonable and nondiscriminatory” or RAND royalties that Motorola could lawfully charge Microsoft for licenses to use Motorola patents that were essential to two industry standards. Although the case involved only a claim for breach of contract, Judge Robart’s opinion regulated monopoly pricing, a task courts try to avoid in other contexts, claiming institutional incapacity. In this instance, however, Judge Robart identified standards that he believed adequately guided him in the task. He recognized that the economic purposes of the RAND commitment were to prevent owners of standards-essential patents from, first, holding up licensees by exploiting the additional monopoly power that the standard conferred and, second, inefficiently stacking royalties with other essential patents. In estimating rates consistent with these purposes, he used as starting points the rates charged by two patent pools associated with the standards. Throughout, Judge Robart presented the process of estimation in terms of a hypothetical negotiation between a prospective licensee and the owner of the standard-essential patent. In this paper, however, I argue that Judge Robart’s approach, and the process of calculating RAND or FRAND royalties generally, can be better understood as comparable to the calculation of the overcharge caused by a monopolistic exclusionary practices — a form of antitrust injury. In both contexts, courts compare actual prices with those in counterfactual, but-for world free from improper exploitation of monopoly power.