Standard-Essential Patents

Intellectual Property, Competition Policy and Antitrust and Patents

Article Snapshot

Author(s)

Josh Lerner and Jean Tirole

Source

Institut d'Economie Industrielle (IDEI) Working Paper 803, 2014 (revised)

Summary

This paper proposes a solution to the problem of inefficient license pricing for patents included in standards.

Policy Relevance

Regulators can overcome high license fees for patents included in standards by mandating ex ante structured price commitments for patents submitted for inclusion in standards.

Main Points

  • Unremarkable patents may become important upon inclusion in a technological standard; call these standard essential patents (SEPs).
     
  • Inclusion in a standard grants significant pricing power to the holder of a patent. Standard-setting organizations (SSOs) insist that patent holders agree to “fair, reasonable, and non-discriminatory” licensing practices. This language is imprecise and intense litigation often results.
     
  • Patent holders are reluctant to explicitly discuss licensing during the standard setting process, because the standard-setting organization hold significant power over patent holders before the standard is set. If licensing rates were discussed, the SSO would be in a position to demand a large share of licensing fees.
     
  • One solution to this problem is for SSOs to insist that patent holders announce price caps on their licensing before the standard is set. The SSO would select patents for the standard taking this cap into consideration.
     
  • However, patent holders would likely respond to unilateral SSO insistence on price caps by “forum shopping”, seeking out an alternative SSO that did not demand advance commitment to price caps on licensing fees.
     
  • This problem calls for a regulatory mandate for advance price commitments by firms submitting patents for inclusion in a standard.
     

 

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