Revisiting the Bizarre SEP Level of Licensing Antitrust Controversy

The common practice by owners of standard-essential patents ("SEP") of licensing their SEPs to end-product manufacturers only and not to the manufacturers of intermediate goods, thereby ensuring these manufacturers are protected when selling to licensed end-product manufacturers, is currently subject to scrutiny in various parts of the world.

The European Commission is currently analyzing complaints alleging that Nokia Oyj has breached Article 102 TFEU by refusing to license its SEPs other than to manufacturers of end-user products.

In a brief paper, authors Jorge Padilla and Pekka Sääskilahti at Compass Lexecon explain why this licensing practice is optimal from a social welfare perspective. They show that there is no basis as a matter of economics to conclude that the practice of licensing SEPs at the end-product level only could distort the competitive process to the ultimate detriment of consumers. From an economic viewpoint, therefore, this practice cannot and should not be construed as either exploitative or as an anticompetitive refusal to deal.

Key points:

• The controversy on the level of the value chain at which SEPs should be licensed will likely have a significant impact on the development, standardization, and diffusion of new technologies.
• This controversy is highly unconventional: intermediate product suppliers insist on paying royalties that no one requests them to pay.
• The decision to license SEPs to end-product manufacturers only, which constitutes standard practice in many industries, is efficient and, given existing legal constraints, unambiguously procompetitive.

Access the paper published in the Journal of European Competition Law & Practice (available to subscribers only)