Deal or No Deal? Licensing Negotiations by Standard Setting Organizations

Standards, Interoperability, Patents and Intellectual Property

Article Snapshot


Richard Gilbert


Antitrust Law Journal, Vol.77, 2011


This paper determines when negotiations between standard-setting firms and patent holders are economically desirable.

Policy Relevance

Some inefficiencies associated with standards setting organizations can be overcome if negotiations between patent holders and licensors are permitted.

Main Points

  • Technical standards can make firms and consumers better off by promoting product compatibility, but they may permit firms that own patents used in the standard to extract excessive profits after the standard is adopted.
  • Standard setting organizations (SSOs) can avert this possibility by asking patent holders to commit to fair, reasonable, and nondiscriminatory licensing agreements, but this is not a perfect solution.
  • Alternatively, SSOs can negotiate as a group with patent holders before a standard is set. This may cause the opposite problem: patent licensees, negotiating together, may force patent owners to license at rates too low to sustain innovation.
  • This paper develops a model that attempts to describe optimal regulation of SSO-patent holder negotiations.
    • If patent holders are unlikely to be able to extract excessive fees after a standard is adopted, or if the excess is likely to be small, there is no economic benefit to permitting SSOs to negotiate with patent holders before a standard is set.
    • On the other hand, if excessive fees are expected to be large, pre-standard negotiations can be beneficial.
    • Negotiations between individual firms and patent holders, rather than between the entire SSO and patent holders, can mitigate the problem of SSO leverage, but different firms should be able to obtain similar terms.


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