Damien Neven

Standard Essential Patents: Who is Really Holding Up (and When)?

This paper analyzes the effect of injunctions on royalty negotiations for standard essential patents. We develop a model in which courts grant injunctions only when they have sufficient evidence that the prospective licensee is unwilling, in line with the way we understand Courts to operate in Europe. In such a framework the prospective licensee has a powerful strategic tool: the offers that he makes to the patent holder will affect the royalty rate that the Court may adopt as well as the probability of being subject to injunctions (and the liability for litigation costs). We find that despite the availability of injunctions, the holder of a sufficiently weak patent will end up accepting below FRAND rates, in particular when litigation cost are high. We also find that the prospective licensee will sometimes prefer to litigate and the holder of a sufficiently strong patent will always end up in litigation by rejecting offers below FRAND. This arises in particular when the prospective licensee has little to fear from being found unwilling, namely when the trial takes time (so that the threat of injunctions is less powerful), and when litigation costs are low. Importantly, we thus find that hold up (royalties above the fair rate) as well as reverse hold up (royalties below the fair rate) may arise in equilibrium.

United States – Measures Affecting Trade in Large Civil Aircraft (Second Complaint): some comments

This paper provides limited comments on portions of the Appellate Body (AB) judgment. With respect to the existence of a subsidy under contracts with NASA and DOD, we find the discussion of whether Boeing has received a financial contribution to be a distraction from the core issue – whether the mix of monetary compensation, access to government personnel and facilities, and IP rights ‘overcompensated’ Boeing for the services it rendered (or whether the government paid more for those services than they were worth to the government). The panels analysis of this core issue, which focused on whether Boeing was the principal beneficiary of the contracts, is flawed, but the alternative approach of the AB is equally flawed. The analogy between an RD that is, it is not implausible that if Boeing had not received a subsidy and would accordingly have developed the 787 later, Airbus would also have delayed the development of the A350. To determine the existence of adverse effects, the panel and AB should have considered the profit (or sales) of Airbus relative to what would have happened in this counterfactual world. Finally, we observe that the analysis of lost sales and ‘price suppression’ fails to consider the specific features of competition in the aircraft industry. Unlike what happens in the market with posted prices, when contracts are individually negotiated, whether the outcome of competition is affected by a subsidy depends on the relative cost position of the bidders. When Boeing is the lowest cost bidder, the only effect of the subsidy is to increase its rent, with no effect on sales or prices for Airbus.

Philippines – Taxes on Distilled Spirits: Like Products and Market Definition

This paper provides a legal–economic analysis of the Appellate Body decision in Philippines – Taxes on Distilled Spirits (Philippines–Spirits). In Philippines–Spirits, the Panel and the Appellate Body had an opportunity to consider again the scope of ‘like products’ and of ‘directly competitive or substitutable products’ under Article III:2 of GATT. The Panel and Appellate Body followed the Border Tax Adjustments factors in order to determine whether the products were sufficiently similar. The Appellate Body explicitly extended its jurisprudence from other areas of Article III to a like-products determination under the first sentence of Article III:2: this analysis is to be focused on the degree of competition between the imported and domestic products. We observe that the effect of different taxation on domestic products is affected by the degree of substitution between products as well as competitive conditions, whereas the Appellate Body seems to focus on the former and ignore the latter. We also question some of the Panel and Appellate Body interpretations of the evidence regarding the degree of substitution between products. Overall, we find that even if there may be a segment in which foreign and domestic products compete, the reported evidence in this case would seem to be consistent with the view that for the bulk of the market, foreign and domestic items are distant substitutes. Putting aside the jurisprudence, a methodologically sound finding regarding substitution (and competition) seems necessary, but not sufficient, for a finding of inefficient discrimination. In order to find inefficient discrimination, there must also be a finding that the nonprotectionist benefits that may arise from the national regulation are not sufficient to justify the discriminatory action, otherwise, rational regulation that is globally efficient might be invalidated, inappropriately restricting the national right to regulate. In the present case, the Philippines articulated no nonprotectionist rationale for its distinctions. Existing WTO jurisprudence in this area prior to the Appellate Body decision in US–Clove Cigarettes (in the context of Article 2.1 of the technical barriers to trade agreement) has only hinted at the additional focus on the justificatory role of nonprotectionist regulatory benefits, yet an explicit and appropriately contextualized reference to the nonprotectionist rationale, if any, of regulation seems to be a necessary part of decision-making.

Ownership, Performance and National Champions

Competition policy is at a crossroads on both sides of the Atlantic. In this insightful book, judges, enforcers and academics in law and economics look at the consensus built so far and clarify controversies surrounding the issue.