Valuing Standard Essential Patents in the Knowledge Economy: A Comparison of F/RAND Royalty Methodologies in U.S. Courts

This paper comparatively examined the valuation methodologies put forward and accepted in four recent FRAND cases adjudicated in the US in 2013-14 and found a link to the business models (i.e. value logics) employed by the actors and the type of standards involved. This indicates that the value of standard essential patents (SEPs) may be dependent on the market structure under which standards are developed. Additionally, valuation models based on prior license agreements seem to currently produce higher valuations of SEPs, everything else equal. However, a lack of agreement by the different courts regarding similar valuation methods indicates the value of SEPs still lacks consensus on both legal and economic grounds, especially in relation to new knowledge-based business models and norms. This suggests that policy makers (both within SSOs and government) should take pause in further defining IPR policies and adopting new patent regulations without a deeper understanding of the potential impact to both dynamic and static economic efficiency in respect to an emerging new division of innovation labor and knowledge-based business models. This is particularly relevant as the studied cases confirm that lack of empirical evidence that perceived problems such as patent holdup and royalty stacking are more than a merely contractual/transactional phenomenon that can't well be addressed on a case-by-case basis by the courts.