Anti-Competitive Effects of Discriminatory Licensing for Standards-Essential Patents and Antitrust Policymaking

Antitrust examination of discriminatory patent licensing fees imposed by companies who own standards-essential patents(SEPs) is a difficult issue in antitrust law enforcement. After studying Huawei's litigation against IDC and China's anti-monopoly investigation of Qualcomm, this paper creates a vertical oligopolistic game theory model to demonstrate that discriminatory licensing fees imposed by firms with patent monopoly will lead to the collection of high licensing fees from downstream low-cost firms, weaken their competitive advantage, reduce their output and market share, impede their follow-up innovations, and generally harm the social welfare. Therefore, charging high discriminatory licensing fees constitutes an act that harms competition and should be prohibited by antitrust law. Antitrust examination of discriminatory licensing fees should make assessments primarily on the basis of the FRAND principle. Antitrust examination may adopt a triple-structure method to assess the reasonableness of licensing fees, but antitrust authorities should avoid directly prescribing the level of licensing fees and should safeguard the effectiveness of transaction mechanisms based on free negotiations among micro-level entities. Antitrust remedies should follow the principle of "intervening in the price formation mechanism rather than prescribing the level of licensing fees."