Berkeley Law

The role of institutions in mediating the use of intellectual property rights has long been neglected in debates over the economics of intellectual property. In a path-breaking work, Rob Merges studied what he calls "collective rights organizations," industry groups that collect intellectual property rights from owners and license them as a package. Merges finds that these organizations ease some of the tensions created by strong intellectual property rights by allowing industries to bargain from a property rule into a liability rule. Collective rights organizations thus play a valuable role in facilitating transactions in intellectual property rights.

There is another sort of organization that mediates between intellectual property owners and users, however. Standard-setting organizations (SSOs) regularly encounter situations in which one or more companies claim to own proprietary rights that cover a proposed industry standard. The industry cannot adopt the standard without the permission of the intellectual property owner (or owners).

How SSOs respond to those who assert intellectual property rights is critically important. Whether or not private companies retain intellectual property rights in group standards will determine whether a standard is "open" or "closed." It will determine who can sell compliant products, and it may well influence whether the standard adopted in the market is one chosen by a group or one offered by a single company. SSO rules governing intellectual property rights will also affect how standards change as technology improves.

Given the importance of SSO rules governing intellectual property rights, there has been surprisingly little treatment of SSO intellectual property rules in the legal literature. My aim in this article is to fill that void. To do so, I have studied the intellectual property policies of dozens of SSOs, primarily but not exclusively in the computer networking and telecommunications industries. This is no accident; interface standards are much more prevalent in those industries than in other fields. In Part I, I provide some background on SSOs themselves, and discuss the value of group standard setting in network markets. In Part II, I discuss my empirical research, which demonstrates a remarkable diversity among SSOs even within a given industry in how they treat intellectual property. In Part III, I analyze a host of unresolved contract and intellectual property law issues relating to the applicability and enforcement of such intellectual property policies. In Part IV, I consider the constraints the antitrust laws place on SSOs in general, and on their adoption of intellectual property policies in particular. Part V offers a theory of SSO intellectual property rules as a sort of messy private ordering, allowing companies to bargain in the shadow of patent law in those industries in which it is most important that they do so. Finally, in Part VI I offer ideas for how the law can improve the efficiency of this private ordering process.

In the end, I hope to convince the reader of four things. First, SSO rules governing intellectual property fundamentally change the way in which we must approach the study of intellectual property. It is not enough to consider IP rights in a vacuum; we must consider them as they are actually used in practice. And that means considering how SSO rules affect IP incentives in different industries. Second, there is a remarkable diversity among SSOs in how they treat IP rights. This diversity is largely accidental, and does not reflect conscious competition between different policies. Third, the law is not well designed to take account of the modern role of SSOs. Antitrust rules may unduly restrict SSOs even when those organizations are serving procompetitive ends. And enforcement of SSO IP rules presents a number of important but unresolved problems of contract and intellectual property law, issues that will need to be resolved if SSO IP rules are to fulfill their promise of solving patent holdup problems.

My fourth conclusion is an optimistic one. SSOs are a species of private ordering that may help solve one of the fundamental dilemmas of intellectual property law: the fact that intellectual property rights seem to promote innovation in some industries but harm innovation in others. SSOs may serve to ameliorate the problems of overlapping intellectual property rights in those industries in which IP is most problematic for innovation, particularly in the semiconductor, software, and telecommunications fields. The best thing the government can do is to enforce these private ordering agreements and avoid unduly restricting SSOs by overzealous antitrust scrutiny.