Standard Setting Organizations and Standard Essential Patents: Voting and Markets

Interoperability, Standards, Competition Policy and Antitrust, Intellectual Property and Patents

Article Snapshot

Author(s)

Daniel Spulber

Source

The Economic Journal, Vol. 129(619), pp. 1477–1509 (2018)

Summary

Some observers are concerned that standard setting unfairly benefits the owners of standard essential patents (SEPs). However, standard setting organizations (SSOs) usually choose rules that benefit all.

Policy Relevance

SSO voting procedures counterbalance inventors’ market power. Standard setting benefits technology adopters as well as inventors.

Main Points

  • Standards promote interoperability, maintain quality and safety, and improve coordination between economic actors; however, some antitrust authorities express concerns that standards reduce competition and disproportionately benefit the owners of SEPs (inventors).
     
  • Efficient standards maximize welfare, that is, they make inventors, technology adopters, and consumers better off than the choice of any alternative standard.
     
    • Proving that a real-world standard is efficient is difficult, because alternatives to the standard never develop.
       
    • Research shows that certain standards are associated with economic growth.
       
  • To explore the relationship between SSO voting and market power, the model developed in this paper includes a first stage, during which inventors and adopters vote to choose a technology standard, and a second stage, during which inventors license SEPs to adopters.
     
  • Adopter market power and influence in SSOs counterbalances inventors’ market power; whether SSO members are inventors, adopters, or both, SSOs choose efficient standards.
     
    • Empirical research shows that SSO members try to choose efficient technologies.
       
    • Members’ influence in the SSO process is not a result of market power outside the SSO.
       
    • Even in a worst-case scenario, when inventors exercise market power, standards can be efficient.
       
    • Overall, adopters may have more influence in SSOs than inventors.
       
  • When a standard incorporates SEPs and SSO members include both inventors and adopters, the SSO will choose efficient standards if the decision rule requires a majority of votes or more.
     
    • Most inventors vote for efficient standards to increase returns from licensing revenue.
       
    • Most adopters support efficient standards because they increase final output.
       
    • Voting by adopters counterbalances small groups of inventors (and their allies) who vote for inefficient standards.
       
  • When a standard does not incorporate SEPs, SSOs choose the efficient standard, even when the benefits vary for different types of adopters.
     
    • A larger group of adopters will have more voting power, but less market power.
       
    • Smaller groups of adopters will have less voting power and more market power.
       
  • For drastic innovations, an efficient standard with SEPs generates greater benefits than alternatives with no SEPs, and adopters choose the standard with SEPs; when drastic innovations are considered, SSOs tend to require full consensus in choosing standards, rather than majority rule.
     

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