Cover Page. The handle holds various files of this Leiden University dissertation.

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Cover Page The handle http://hdl.handle.net/1887/50157 holds various files of this Leiden University dissertation.

1 Cover Page The handle holds various files of this Leiden University dissertation. Author: Mair, C.S. Title: Taking technological infrastructure seriously Issue Date:

2 TAKING TECHNOLOGICAL INFRASTRUCTURE SERIOUSLY Carl Mair

3 Printed by ProefschriftMaken Proefschriftmaken.nl ISBN Copyright 2017 by C.S. Mair. All rights reserved. No parts of this thesis may be reproduced, stored or transmitted in any way without prior permission of the author.

4 TAKING TECHNOLOGICAL INFRASTRUCTURE SERIOUSLY PROEFSCHRIFT ter verkrijging van de graad van Doctor aan de Universiteit Leiden, op gezag van Rector Magnificus prof. mr. C.J.J.M. Stolker, volgens besluit van het College voor Promoties te verdedigen op donderdag 29 juni 2017 klokke uur door Carl Stephen Mair geboren te London, United Kingdom in 1982

5 Promotores: Promotiecommissie: prof.dr. A.H.J. Schmidt prof.dr. G.J Zwenne prof. J.L Contreras (University of Utah, Salt Lake City, USA) prof. B.M Frischmann (Yeshiva University, New York City, USA) prof.dr. D.J.G Visser prof.dr. G.P van Duijvenvoorde dr. R.P Orij

6 Preface PREFACE In 970AD the Viking king, Harald Blåtand, united the warring tribes of Denmark and Norway, and ushered in a period of relative stability and flourishing. In 2017, the devices that bear his insignia and anglicised name, Bluetooth, now stand for a different sort of integration and a new kind of flourishing. The royalty-free, short-range wireless protocol is driving the proliferation of wearables and Internet of Things devices. Unlike other standards in the area of wireless connectivity such as 3G and 4G LTE, Bluetooth stands apart by being comparatively unlitigated and open to all implementers at zero cost. The Bluetooth standard is an example par excellence of critical technological infrastructure operating under an open access rule. But although the technology over Bluetooth is free, it is not public domain. Every time an implementer integrates Bluetooth technology into its devices, it necessarily infringes dozens of patents. Instead of litigating, the technology owners choose to license Bluetooth at zero cost. Why? The team behind another zero cost standard, a royalty-free alternative to MP3, the Opus audio codec, helps explain the reasoning: Most of the value of a high-quality standard is the innovation and inter-operation provided by the systems built on top of it. When a few parties have monopoly rights to monetize a standard, that infrastructure stops being so common and everyone else has more reason to use their own solution instead, increasing cost and reducing efficiency. Imagine a road system where each type of car could only drive on its own manufacturer s pavement. We all benefit from living in a world where all the roads are connected. There is something convincing about this explanation, but it is an intuition and not a reasoned argument. While zero-cost licensing of technological infrastructure is wide spread, it is still not the norm. Nevertheless, the above intuition comprises a number of important assumptions, which also apply to other models of open access licensing of technological infrastructure, such as the fair, reasonable and non-discriminatory licensing conditions often required by telecommunications standards. These assumptions deserve careful consideration because they seem to cut across ideas central to mainstream economics and IP theory, such as the primacy of private property and exclusive rights in driving innovation. So, what is technological infrastructure and why is it unique? Does it really need special management, 5

7 Preface and if so, how? What is the role of the law and the courts in designing these management regimes, and what aspects give rise to enforceable rights if and when these regimes break down? This dissertation sets out to answer these questions by investigating access problems to essential intellectual property in technological infrastructure, and the institutions which underwrite them. Carl Mair May 2017, The Hague 6

8 TABLE OF CONTENTS PREFACE 5 LIST OF ABBREVIATIONS 11 INTRODUCTION 13 CHAPTER 1. TAKING TECHNOLOGICAL INFRASTRUCTURE SERIOUSLY: STANDARDS, ANTITRUST AND INTELLECTUAL PROPERTY 23 I. INTRODUCTION 25 II. INFRASTRUCTURE THEORY 29 A. ECONOMIC CHARACTERISTICS OF INFRASTRUCTURE 30 B. PRIVATELY-OWNED TECHNOLOGICAL INFRASTRUCTURE 33 III. FROM DE FACTO TO DE JURE STANDARDS 41 A. WHY HIGH TECHNOLOGY MARKETS PREFER DE JURE STANDARDS: GAME THEORY APPROACH 41 B. SOLVING THE EX POST PRISONER S DILEMMA : THE PURPOSE OF FRAND COMMITMENTS 45 C. LEGAL ANALYSIS OF FRAND COMMITMENT Contract or Competition Law Duty? Enforcement Issues 50 a) Contractual Approach 50 b) Competition Law Duty? 54 IV. THE DYNAMICS OF BARGAINING UNDER PROPERTY AND LIABILITY RULES 58 A. EU POSITION ON INJUNCTIONS IN FRAND NEGOTIATIONS 58 B. BARGAINING IN THE SHADOW OF LEGAL RULES: PROPERTY V LIABILITY RULES FRAND Bargaining under Injunctions v Liability Rules Bargaining in the Shadow of Injunctions: Dynamic Constraints? Bargaining in the Shadow of a Liability Rule or Third Party Determination 67 a) Problems of Reverse Holdup; Information-Forcing under a Liability Rule 68 V. INTEGRATING THE INFRASTRUCTURAL APPROACH 70 VI. CONCLUSION 75 CHAPTER 2. TECHNOLOGICAL INFRASTRUCTURE AND THE EU ESSENTIAL FACILITIES DOCTRINE 79 I. INTRODUCTION 81 II. BACKGROUND: LEGAL AND ECONOMIC 83 A. FACTUAL AND LEGAL BACKGROUND The origin of the complaint against Microsoft and the Commission Decision Microsoft s action before the GC 83 B. EFD IN THE ABSTRACT: LEGAL AND ECONOMIC FOUNDATIONS 84

9 1. Legal foundations of the EFD: the EU context 84 a) The EFD in its wider context: function and origin Economic foundations of the EFD: the issue of efficiency 86 a) Monopolies: de facto and de jure 88 b) IP as an essential facility 91 c) The EFD as a special case of refusal to supply 93 III. THE COURT S REASONING: TO WHAT EXTENT WAS THE EFD APPLIED? 94 A. THE STRUCTURE OF THE GC S REASONING Indispensability of the interoperability information and the elimination of competition Prevention of the emergence of a new product and lack of objective justifications 98 IV. CONCLUSION 102 A. COMMENTARY 102 B. EU COMMISSION S INVESTIGATION INTO THE ANDROID MOBILE OS 104 C. OVERALL CONCLUSION 106 CHAPTER 3. VISIBLE AND INVISIBLE HANDS: IP, SUBSIDIES AND OPEN ACCESS IN THE EU INNOVATION SYSTEM 109 I. INTRODUCTION 111 II. GROUNDWORK: ORIENTATING THE ARGUMENT 112 A. INNOVATION INSTITUTIONS AND COMPARATIVE ANALYSIS Spillovers Uncertainty Comparative institutional analysis 115 B. INTELLECTUAL INFRASTRUCTURE Background 118 a) Defining Intellectual Infrastructure 118 b) Intellectual infrastructure and open access licensing Scientific infrastructure Technological infrastructure Technological infrastructure arising under a subsidised R&D regime 128 III. THE INSTITUTION OF INTELLECTUAL PROPERTY 131 A. INTELLECTUAL PROPERTY AND SPILLOVERS 132 B. TECHNOLOGY TRANSFER FUNCTION OF IP 136 C. EXPLORING INTELLECTUAL PROPERTY AS PROPERTY Game theory and the evolution of property Game theory and IP Property traps 148 IV. R&D SUBSIDIES AND TECHNOLOGICAL INFRASTRUCTURE 151 A. ECONOMIC JUSTIFICATIONS FOR SUBSIDIES 152 B. SUBSIDY FAILURE 156

10 C. EU H2020 AND PROXIMITY TO MARKET 157 D. INFRASTRUCTURAL KNOWLEDGE AND OPEN ACCESS Basic research Technological infrastructure and subsidies 160 V. CONCLUSION 162 CHAPTER 4. OPEN STANDARDS AND THEIR ENEMIES: THE PUBLIC DEMAND-SIDE APPROACH 165 I. INTRODUCTION 167 II. BACKGROUND 170 A. FORMAL AND INFORMAL SSOS IPR POLICIES 171 B. MEMBER STATE PUBLIC PROCUREMENT IPR POLICIES 172 C. INTEROPERABILITY STANDARDS AND OPEN SOURCE SOFTWARE IMPLEMENTATION 173 III. RF INTEROPERABILITY STANDARDS AND INNOVATION 174 A. PARTICIPANTS IN STANDARD-SETTING 175 B. FAST ADOPTION RATES AND NETWORK EFFECTS 176 C. STRATEGIC CONSIDERATIONS 177 D. MANDATORY RF LICENSING IN PRACTICE 178 IV. RISKS FACED BY RF INTEROPERABILITY STANDARDS 180 A. THE CHALLENGE OF IP COMPANIES AND PATENT TROLLS TO RF STANDARDS 181 V. DEALING WITH THE CHALLENGE OF THIRD PARTY IP COMPANIES 183 A. DEFENSIVE PATENTING 183 B. COMPETITION LAW REMEDIES 184 C. PATENT SYSTEM REMEDIES 186 VI. CONCLUSION 187 CHAPTER 5. INTEL, ARM AND PRIVATE ORDERING APPROACHES TO TECHNOLOGICAL INFRASTRUCTURE 189 II. SEMICONDUCTOR INDUSTRY: OVERVIEW AND THEORY OF IP LICENSING 195 A. SEMICONDUCTOR INDUSTRY OVERVIEW 195 B. SURVEY OF IP LICENSING STRATEGIES IN HIGH TECHNOLOGY The closed exclusive property approach to IP licensing Open approaches to IP licensing 202 III. A CLOSER LOOK AT INTEL AND ARM 207 A. INTEL S HISTORY, BUSINESS MODEL AND IP LICENSING APPROACH Intel s origin story Approach to IP Licensing and Establishment of the Walled Garden Intel s Experience in the PMD and Nascent IoT markets 211 B. ARM S HISTORY, BUSINESS MODEL AND IP LICENSING STRATEGY History of ARM 213

11 2. ARM s open approach to IP licensing and business model ARM s experience in the PMD and nascent IoT spaces 215 IV. MICROPROCESSOR INFRASTRUCTURE AND SOFTWARE PLATFORMS 216 A. THE DOMINANT PMD SOFTWARE PLATFORM: ANDROID 217 B. INTEL X86 AND ANDROID: POSSIBILITY OF PORTING 219 C. INTEGRATING THE SOFTWARE AND MICROPROCESSOR PLATFORM APPROACHES WITH IP LICENSING STRATEGIES 220 V. CONCLUSION 222 CONCLUSION 225 TABLE OF AUTHORITIES 233 SUMMARY 265 SAMENVATTING: TECHNOLOGISCHE INFRASTRUCTUUR SERIEUS NEMEN 273 ACKNOWLEDGEMENTS 281 CURRICULUM VITAE 285

12 List of abbreviations LIST OF ABBREVIATIONS AG - Advocate General (of the ECJ) API - Application Programming Interface BSA - Business Software Alliance CDMA/(3G) - Code Division Multiple Access (standard) CJEU - Court of Justice of the European Union CPU - Central Processing Unit DARPA - Defense Advanced Research Projects Agency EC - European Community (predecessor to the EU) ECIS - European Committee for Interoperable Systems ECJ - European Court of Justice (a branch of the tripartite CJEU) EFD - Essential Facilities Doctrine EPC - European Patent Convention ETSI - European Telecommunications Institute ESS - Evolutionary Stable Strategy (game theory) F(L)OSS - Free, (Libre), and Open Source Software FP7 - Framework Programme 7 (EU subsidy program) FRAND - Fair, Reasonable and Non-Discriminatory (standard) GC - General Court (of the CJEU) GPL - General Public License (open source) GSC - Global Standards Collaboration H Horizon 2020 (EU subsidy program, or Framework Programme 8) HD - Hawk-Dove (game theory) IC - Integrated Circuit ICT - Information and Communication Technologies IEEE - Institute of Electrical and Electronics Engineers IETF - Internet Engineering Task Force IoT - Internet of Things IPR - Intellectual Property Right ISA - Instruction Set Architecture ITU - International Telecommunications Union LTE (4G) - Long Term Evolution (mobile telecom standard) NAC - Non-Assertion Clause NASA - National Aeronautics and Space Agency NE - Nash Equilibrium (game theory) NPE - Non-Practising Entity OEM - Original Equipment Manufacturer OS - Operating System 11

13 List of abbreviations PD PMD RF SEP SME SoC SSO TFEU TRIPS VM W3C - Prisoner s Dilemma (game theory) - Personal Mobile Device - Royalty-free (standard) - Standards-essential patent - Small and Medium-sized Enterprise - System on a Chip - Standard Setting Organisation - Treaty of the Functioning of the European Union - Trade-Related Aspects of Intellectual Property Rights (treaty) - Virtual Machine - World Wide Web Consortium 12

Cover Page. The handle holds various files of this Leiden University dissertation.

Cover Page. The handle holds various files of this Leiden University dissertation. Cover Page The handle http://hdl.handle.net/1887/50157 holds various files of this Leiden University dissertation. Author: Mair, C.S. Title: Taking technological infrastructure seriously Issue Date: 2017-06-29