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Payments And Participation: The Incentives To Join Cooperative Standard Setting Efforts

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Author Info

  • Anne Layne-Farrar

    ()
    (Compass Lexecon)

  • Gerard Llobet

    ()
    (CEMFI, Centro de Estudios Monetarios y Financieros)

  • Jorge Padilla

    ()
    (Compass Lexecon)

Abstract

This paper studies the effects of a Standard Setting Organization (SSO) imposing a licensing cap for patents incorporated into a standard. In particular, we evaluate the \Incremental Value" rule as a way to reward firms that contribute technology to a standard. This rule has been proposed as a means of avoiding patent hold-up of licensing firms by granting patent holders compensation equal to the value that their technology contributes to the standard on an ex-ante basis, as compared to the next best alternative. Our analysis shows that even in contexts where this rule is efficient from an ex-post point of view, it induces important distortions in the decisions of firms to innovate and participate in the SSO. Specifically, firms being rewarded according to this rule will inefficiently decide not to join the SSO, under the expectation that their technology becomes ex-post essential at which point they may negotiate larger payments from the SSO.

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File URL: http://www.cemfi.es/ftp/wp/1203.pdf
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Bibliographic Info

Paper provided by CEMFI in its series Working Papers with number wp2012_1203.

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Date of creation: Feb 2012
Date of revision:
Handle: RePEc:cmf:wpaper:wp2012_1203

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Related research

Keywords: Intellectual property; standard setting organizations; licensing; incremental value.;

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References

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  1. Benjamin Chiao & Josh Lerner & Jean Tirole, 2007. "The rules of standard-setting organizations: an empirical analysis," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 905-930, December.
  2. Timothy S. Simcoe & Stuart J.H. Graham & Maryann Feldman, 2007. "Competing on Standards? Entrepreneurship, Intellectual Property and the Platform Paradox," NBER Working Papers 13632, National Bureau of Economic Research, Inc.
  3. Bernhard Ganglmair & Luke M. Froeb & Gregory J. Werden, 2012. "Patent Hold-Up and Antitrust: How A Well-Intentioned Rule Could Retard Innovation," Journal of Industrial Economics, Wiley Blackwell, vol. 60(2), pages 249-273, 06.
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Cited by:
  1. David Encaoua & Thierry Madiès, 2012. "Dysfunctions of the patent system and their effects on competition," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00740716, HAL.
  2. Hussinger, Katrin & Schwiebacher, Franz, 2013. "The value of disclosing IPR to open standard setting organizations," ZEW Discussion Papers 13-060, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. David Encaoua & Thierry Madiès, 2012. "Dysfunctions of the patent system and their effects on competition," Working Papers halshs-00740716, HAL.
  4. Lerner, Josh & Tirole, Jean, 2013. "Standard-Essential Patents," IDEI Working Papers 803, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. Schmidt, Klaus M., 2010. "Standards, Innovation Incentives, and the Formation of Patent Pools," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 342, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

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