Nondiscriminatory Pricing: Is Standard Setting Different?

The debate surrounding a RAND licensing promise (for reasonable and nondiscriminatory licensing) made within standard setting has focused on what the “R” means; far less attention has been given to what is implied by the “ND.” The goal of this paper is to offer courts and competition agencies guidance on evaluating when differing intellectual property (IP) licensing within standard setting rises to the level of anticompetitive behavior. The paper reviews the economics literature on price discrimination in traditional markets for goods and services and on licensing IP outside of standard setting to identify lessons that can be applied to licensing within standards. There are a number of important teachings relevant for competition policy. Price discrimination is not necessarily harmful, and can even increase consumer welfare. Most IP licensing is characterized by “discrimination” in that rates and terms differ across licensees, making the task of disentangling anticompetitive practices difficult. Proof of market power must remain the first step in any inquiry on allegations of anticompetitive IP licensing. Moreover, as of yet, no widely applicable benchmarks or rules for distinguishing harmful from beneficial or nonharmful licensing discrimination have emerged, meaning that a careful, quantitative effects-based analysis remains the best approach.