University of Chicago Law and Economics, Olin Working Paper No. 292, 2006
What happens when relevant patents are overlooked during standard setting?
Many standards are held hostage by patent holders who duck the standard-setting process and only come forward after the standard has been adopted. This paper offers some ideas about how to minimize that problem.
Standard-setting organizations (SSOs) describe technical standards so that firms can make products that work together. SSOs ask firms known to hold patents on technology wanted for the standard to agree up-front to license the technology to others on fair terms.
The owner of an undiscovered patent might stay out of the standards process until the technology is widely used, then reveal the patent and demand that other firms pay. The payments can be substantial because, by then, firms will be locked into the standard and thus unable to easily avoid the patent.
One possible strategy to fight this problem is to find ways to ensure that any patent hold-out is not alone. That is, ironically, a vulnerable firm is better off if there are several holdouts rather than just one, because those several will have to share the holdout value. That could drive them to cooperate ahead of time rather than engage in holdout behavior.