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Bundling of RAND-committed patents

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  • Layne-Farrar, Anne
  • Salinger, Michael A.

Abstract

Gilbert and Katz (2006) (GK) show that allowing (pure) patent bundling increases the incentives for patent owners to enter into “long-term” patent licensing that commits them not to expropriate licensees’ sunk costs in complementary assets with opportunistic licensing terms. We interpret RAND commitments as a form of long-term contracting, and extend their framework to analyze the tying of non-RAND-committed patents to RAND-committed patents. Pure patent bundling/tying is common and often has sound efficiency justifications, so we caution against prohibiting the pure bundling of RAND-committed and non-RAND-committed patents. Whether such a license honors a RAND commitment turns, however, on the licensing terms. We argue that including a non-RAND-committed patent (patent 2) in a bundle with a RAND-committed patent (patent 1) does not increase the license fee that honors the RAND commitment. If, however, the patent owner offers patent 1 separately at a RAND rate, its RAND commitment does not restrict what it charges for a bundle of patent 1 and patent 2.

Suggested Citation

  • Layne-Farrar, Anne & Salinger, Michael A., 2016. "Bundling of RAND-committed patents," Research Policy, Elsevier, vol. 45(6), pages 1155-1164.
    • Handle: RePEc:eee:respol:v:45:y:2016:i:6:p:1155-1164
    DOI: 10.1016/j.respol.2016.03.003
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    References listed on IDEAS

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    1. Einer Elhauge, 2015. "Treating Rand Commitments Neutrally," Journal of Competition Law and Economics, Oxford University Press, vol. 11(1), pages 1-22.
    2. Whinston, Michael D, 1990. "Tying, Foreclosure, and Exclusion," American Economic Review, American Economic Association, vol. 80(4), pages 837-859, September.
    3. Daniel Quint, 2014. "Pooling with Essential and Nonessential Patents," American Economic Journal: Microeconomics, American Economic Association, vol. 6(1), pages 23-57, February.
    4. David S. Evans & Michael A. Salinger, 2008. "The Role Of Cost In Determining When Firms Offer Bundles," Journal of Industrial Economics, Wiley Blackwell, vol. 56(1), pages 143-168, March.
    5. Carl Shapiro, 2001. "Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting," NBER Chapters, in: Innovation Policy and the Economy, Volume 1, pages 119-150, National Bureau of Economic Research, Inc.
    6. Josh Lerner & Jean Tirole, 2004. "Efficient Patent Pools," American Economic Review, American Economic Association, vol. 94(3), pages 691-711, June.
    7. Barry Nalebuff, 2004. "Bundling as an Entry Barrier," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 159-187.
    8. Farrell, Joseph & Weiser, Philip J., 2003. "Modularity, Vertical Integration, and Open Access Policies: Towards a Convergence of Antitrust and Regulation in the Internet Age," Department of Economics, Working Paper Series qt4dh7q2dd, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    9. Gilbert, Richard J. & Katz, Michael L., 2006. "Should good patents come in small packages? A welfare analysis of intellectual property bundling," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 931-952, September.
    10. Choi, Jay Pil & Stefanadis, Christodoulos, 2001. "Tying, Investment, and the Dynamic Leverage Theory," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 52-71, Spring.
    11. John Harkrider, 2013. "REPs Not SEPs: A Reasonable and Non-Discriminatory Approach to Licensing Commitments," Antitrust Chronicle, Competition Policy International, vol. 10.
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    Cited by:

    1. Chryssoula Pentheroudakis & Justus A. Baron, 2016. "Licensing Terms of Standard Essential Patents: A Comprehensive Analysis of Cases," JRC Research Reports JRC104068, Joint Research Centre.
    2. Meschnig, Annika & Dubiel, Anna, 2023. "From formation to performance outcomes: A review and agenda for licensing research," Journal of Business Research, Elsevier, vol. 167(C).

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    More about this item

    Keywords

    Patents; Licensing; Bundling; Tying; RAND; FRAND; Hold-up; Intellectual property;
    All these keywords.

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law

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