Case Study: Semiconductors

Question 1

Licensing and Cross-licensing

Answer 1

• Common in cumulative industries: new inventions depend on previous advancements; semiconductors
  
  • Thousands of patents each year
  • Innovations make them smaller and faster
  • Complementary rather than duplicate technology
• Royalty rates have risen over time
  
  • Positive for tech firms with strong portfolios as there’s a bigger benefit for their patent estates
  • If you use others’ patents, you must pay royalties or be forced to develop your own inventions so that you have chips to play when negotiating in cross-licensing
• Advanced products involve a range of tech that is too great for one firm to satisfy all its needs internally
• If a company has a big patent portfolio
  
  • There’s high overlap; cross-licensing all patents in a field with no specific references to individual patents
  • Reduces transaction costs
• Balance royalties with the value of the portfolios involved
  
  • Portfolio of quality patents that cover large area of competitors product market
  • Helps to negotiate access and reduce royalties charged
• Invest in R&D for highest quality patent fields that partners may need access to

Question 2

Radio Corporation of America (RCA)

Answer 2

• Marconi Wireless was the only company capable of transmitting transatlantic radio and telegraph communications at the end of WWI.
• The Navy was opposed to this since Marconi was British owned.
• Roosevelt and the Navy made deal with GE to form privately-owned RCA to acquire Marconi as they needed it for national security.
• GE and RCA cross-licensed patents.
• Eventually formed NBC.

Question 3

AT&T

Answer 3

• AT&T also bought into RCA and cross-licensed.
• First to have “design freedom.”
• Liberal licensing policy in semiconductor industry allowed firms to focus on a field-of-use approach rather than narrowing in on individual patents
  
  • Referenced as a major contributor to advancements in the field during the time
• Bundled / lump-sum licensing is associated with transactional simplicity
  
  • Good since progression of technology is ever-changing, and its use hard to manage
• One strategy they used was to patent specific tech that was of interest to companies that were developing things that AT&T wanted and intended to cross-license; holding it hostage in negotiations
• Capture model - open licensing regimes
  
  • Made large IP portfolio available to the industry for little / no cost
• Carrier revenue was sufficient to generate funding for R&D
  
  • Government considered telephone communications, water, electricity, etc. to be essential utilities and limited the costs
  • Their tech was so advanced that the actual cost of calls was far below government estimates

Question 4

Monopolies

Answer 4

• Monopolies control the majority of market share in their industry or sector with little to no competition, which, depending on the situation, can be good or bad.
• The last great American monopolies were created a century apart, and one lasted over a century.
• The Sherman Antitrust Act banned trusts and monopolistic combinations that placed “unreasonable” restrictions on interstate and international trade.
• Globalization and the maturity of the world economy have prompted calls for the retirement of antitrust laws.
• The focus of modern-day monopolies centers around Internet companies, such as Amazon, Facebook, and Alphabet

All bad?

• Not necessarily; when Rockefeller had a monopoly on oil, they didn’t have competition so not worried about constantly cutting costs and environmental safeguards to beat out competitors

Question 5

AT&T Monopoly

Answer 5

• AT&T Inc. (T), a government-supported monopoly, was a public utility that would have to be considered a coercive monopoly. Like Standard Oil, the AT&T monopoly made the industry more efficient and wasn’t guilty of fixing prices, but rather of the potential to fix prices.
• The breakup of AT&T by then-President Ronald Reagan in the 1980s gave birth to the “Baby Bells.” Since that time, many of the Baby Bells have begun to merge and increase in size to provide better service to a wider area.
• Very likely, the breakup of AT&T caused a sharp reduction in service quality for many customers—and, in some cases, higher prices—but the settling period has elapsed, and the Baby Bells are growing to find a natural balance in the market without calling down Sherman’s hammer again.

Question 6

Anti-trust

Answer 6

• Anti-trust actions on AT&T, but also on IBM and related electronic companies like Xerox, resulted in decades of patent price controls in the electronic industry.
• IBM & other companies that started to charge real money for patents
• Uproar in community
• Money brought in by IBM for IP has been substantial
• IBM & other companies, forcing the true worth of patents
• Chip industry, and true cumulative technology