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73 Antitrust L.J. 1 (2005-2006)
Reasonable and Nondiscriminatory (Rand) Royalties, Standards Selection, and Control of Market Power

handle is hein.journals/antil73 and id is 11 raw text is: REASONABLE AND NONDISCRIMINATORY (RAND) ROYALTIES, STANDARDS SELECTION, AND CONTROL OF MARKET POWER DANIEL G. SWANSON WILLIAM J. BAUMOL* Two sets of rules are critical for the long-run prospects of the economy: those for the use and dissemination of intellectual property (IP) and those for the establishment of standards promoting the compatibility of products embodying such IP. This article is concerned with issues that arise at the intersection of these sets of rules, particularly those dealing with the effects on competition of the adoption by standard-setting organizations (SSOs) of interface and other compatibility standards in which private parties own intellectual property rights. We focus especially on reasonable and nondiscriminatory (RAND) licensing commitments that SSOs may impose or solicit in the course of standard setting to avoid conferring market power on private IP holders. We evaluate these practices in relation to economic theory and the policies of the antitrust and intellectual property laws. From the point of view of the general welfare, any system of rules affecting innovative intellectual property is beset by an inherent tension between (1) providing effective incentives for investment of labor and other valuable resources in the difficult, expensive, and risky activities required for innovation, and (2) facilitating and encouraging rapid dis- semination and adoption of new products and processes to replace obsolete ones. It may well be thought that success in the latter generally can be achieved only at the expense of the former, and vice versa. The * Daniel G. Swanson is a member of the California Bar, and William J. Baumol is Harold Price Professor of Entrepreneurship and Economics, and Academic Director, Berkley Center for Entrepreneurial Studies, New York University, and Professor Emeritus, Princeton University. An earlier version of this paper was presented by Daniel Swanson at the Joint Hearings of the United States Department of Justice and the Federal Trade Commission Regarding Competition and Intellectual Property Law and Policy in the Knowledge-Based Economy (Joint DOJ/FTC Hearings), Washington, D.C., on April 18, 2002. The views expressed in this article are those of the authors alone, although we are grateful to three anonymous referees for their exceedingly helpful comments on earlier drafts.

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