An influential literature claims that standard setting for high–technology interoperable products potentially creates monopoly power for the owners of standard–essential patents. Moreover, because there are many owners of standard–essential patents, and each may independently exercise monopoly power (a phenomenon called royalty stacking), an anticommons tragedy may ensue. With actual data from the canonical case of the smartphone industry, this Article shows that royalty stacking theory predicts a cumulative royalty yield of nearly eighty percent. That is, it predicts that four–fifths of the price of a smartphone will accrue to patent holders. Even if all patent holders would combine to eliminate the tragedy of the anticommons and behave as a single monopolist, theory predicts a cumulative royalty yield of nearly sixty–seven percent. That is, it predicts that two–thirds of the price of a smartphone will accrue to patent holders. This Article then uses actual data from licensors in the smartphone value chain to estimate the actual cumulative royalty yield. It finds that in 2016, the cumulative royalty yield in the world smartphone value chain was only 3.4 percent of the average selling price of a smartphone. This suggests that patent holders do not exercise any meaningful monopoly power to increase prices in the world smartphone market, much less that there is an anticommons tragedy in the smartphone industry.
Alexander Galetovic, Stephen Haber, and Lew Zaretzki,
IS THERE AN ANTICOMMONS TRAGEDY IN THE WORLD SMARTPHONE INDUSTRY?,
32 Berkeley Tech. L.J. 1527