Patent Misuse Through the Capture of Industry Standards

Janice M Mueller

1/01/2005
(Original Publish Date: 2002)

The existence of a patent on a particular technology conveys the statutory right to exclude, but in no way guarantees economic power in the marketplace. When a patented technology is adopted as an industry standard, however, that equation can change radically. Because of competitive necessity to practice the patented standard, particularly in industries characterized by network effects, the power potentially conveyed by the patent is greatly amplified. Industry standards are subject to "capture" when firms that participate in formulating a standard have also obtained (or are seeking) patent or other proprietary rights in some aspect of the technical subject matter of the standard, without disclosing the existence of those rights to the standard-setting organization. Conflicts arise when a license under these patents is essential to practicing a standard and the patent owner refuses to license certain competitors, or grants licenses only at terms perceived by users as commercially unreasonable. Absent a mechanism to compel licensing, a hold-up problem ensues.