Exploiting market power to stifle innovation
May 3, 2013
But as discussions related to these anticompetitive practices among the device market intensify, little attention has been paid to a particular practice that has dire consequences for consumers and the marketplace.
Patent pooling – or agreements between two or more companies to collectively license patents for specific technologies – is a fairly common practice among device companies. These agreements should save money and make it easier for other companies to buy licenses for a designated technology; the product price for costumers should go down. This system seems like an effective solution until the patent begins to expire, but there are companies who have found a way to exploit the U.S. patent system for their own self-interest.
One such company is MPEG LA– a company few may know about but each person with any type of mobile device has a direct connection. The for-profit MPEG LA exclusively sells licenses for the MPEG 2 video compression technology used in a variety of consumer products that stream video and audio data. MPEG LA implements long-term licensing contracts that do not achieve maximum efficiencies and charges unreasonable royalties for expired patents, a blatant anticompetitive exercise of market power that passes unreasonable costs to licensees and in turn to consumers.
And unfortunately the consequences of these “bad actors” can be felt far and wide, even impacting job creation during these tough economic times. Where larger firms simply raise their prices – which get passed onto the consumer – MPEG LA’s practices dissuade smaller companies from even using patent pools. These smaller startups fuel innovation and create new jobs.
Additionally, one of MPEG LA’s subsidiaries, MobileMedia Ideas LLC has been established for the sole purpose of suing everyone in its path who might have violated the company’s extremely vague licensing agreements. This allows MPEG LA to collect money from device manufacturers through licensing fees in addition to frivolous lawsuits.
But unfortunately these practices are nothing new. A recent study shows that between 1990 and 2010 patent trolling lawsuits, such as the ones conducted by MobileMedia Ideas, have cost the defendants more than $500 billion in wealth and over $83 billion per year during the last few years.
For a company that doesn’t manufacture anything, MPEG LA and other trolls have a firm stranglehold on technological innovation. And until these companies are forced to change their practices, they will continue to be financially rewarded for bad business at consumers’ expense.