The structure and the evolution of essential patents for standards: Lessons from three IT standards

This paper examines the structure and the evolution of the patents declared as essential for three major technical standards in information technology (MPEG2, DVD and W-CDMA). These standards have many essential patents, which are owned by many firms with different interests. Many patents have been applied even after the standard was set. We analyze three important reasons for why the essential patents are many and increase over time: they cover a number of different technology fields, there exist R&D competition even in a narrowly defined technology field and a firm can expand its patent portfolio by using continuations and other practices based on the priority dates of its earlier filed patent applications in the USA. Around 40% of the essential US patents for MPEG2 and DVD standards have been obtained by using these applications. However, our empirical analysis suggests that a firm with pioneering patents does not obtain more essential patents, using these practices.standard, essential patent, continuations

Technology standards, patents and antitrust

From the perspective of antitrust authorities, the multiplication of patents embodied in technology standards is a source of concerns. Certainly it is necessary and efficient that patents owners derive a revenue from the use of the standard. Yet by their function - ensuring compatibility between different products by promoting a common technology platform in a particular industry - standards generate potential for market power far beyond the legal protection conferred by patents. Patent holders may thus be tempted to leverage their position to make illegal profits. Such concerns arise in two different cases that have fueled antitrust debates and economic research during the last decade. On the one hand, patent owners may be tempted to collude by coordinating their licensing policies. The difficulty here is that some coordination between them within a patent pool may actually be pro-competitive. After a brief introduction, we explain in the first part why, and on what conditions, patent pools should be accepted by antitrust authorities. On the other hand, patent owners may be tempted to manipulate the standard setting process by waiting for the wide adoption of the standard before charging excessive royalties to its users. We present this hold-up problem in the second part, and show how appropriate rules for standard setting processes can help mitigate it.Antitrust, Hold-up, Innovation, Licensing, Patent, Patent Pool, Royalty, Standard

Patent Pool Outsiders

Individuals who decline to join cooperative groups — outsiders — raise concerns in many areas of law and policy. From trade policy to climate agreements to class action procedures, the fundamental concern is the same: a single member of the group who drops out could weaken the remaining union. This Article analyzes the outsider problem as it affects patents. The outsider question has important bearing on patent and antitrust policy. By centralizing and simplifying complex patent licensing deals, patent pools conserve tremendous transaction costs. This allows for the widespread production and competitive sale of many useful technologies, particularly in the consumer electronics industry. Because these transaction cost savings appear to outweigh the most common competition-related concerns patent pools raise, antitrust authorities generally view these private pools favorably. Others are less sanguine. Most patent pools are incomplete: for the technologies they cover, not all relevant patents are included. The reason for this is understandable: patent holders sometimes believe they can negotiate for higher royalties by declining to join an existing pool. Antitrust regulators are aware of this behavior, but do not worry much about it. A growing number of economists and legal scholars believe, however, that this outsider behavior may impose higher costs on pool licensees, detracting from the central benefit that patent pools offer — transaction cost savings. These commentators urge antitrust regulators to regard patent pools with greater caution and skepticism. These calls for caution, however, are based mostly on theories about how patent pools should work, rather than empirical study. Remarkably, little research has been done to shed light on the actual impact of patent pool outsiders. Through an original ethnographic study, this Article seeks to remedy this gap. A set of the most notable and public episodes of outsider behavior were collected from industry press reports, case reports, and historical archives. Crucial new information was then gathered through interviews with lawyers and executives directly involved with the episodes studied. The study reveals a characteristic of patent pools that has gone unappreciated until now: they subtly but powerfully influence bargains that take place “poolside” — i.e., deals between patent holders and licensees that take place “in the shadow” of the pool. This spill-over effect can beneficially limit the power that theorists have assumed outsiders to have. This is an unappreciated benefit of cooperation. The theorists, as it turns out, have not used the wrong approach, but rather, have been missing some important parameters. To further aid regulators, this Article builds upon its qualitative findings by introducing a new quantitative technique for estimating the cost that a licensee either incurs or saves due to an outsider. Applying this technique to original financial and industry data gathered from research subjects, this Article shows that, counterintuitively, patent licensees are sometimes better-off where cooperation among licensors is partial, rather than complete. The inflection point lies where the royalty rate hike that a unified pool would need to charge to draw in an outsider is equal to the transaction costs that licensees would conserve by dealing with a single pool. This study’s revelations have provocative implications that reach beyond patent law. Contrary to conventional wisdom, slightly fragmented property markets may sometimes be preferable to “grand coalitions.” There may exist in any given market for complementary patent rights (or other complementary property rights), an optimal level of diffusion of ownership that resides between total diffusion and total concentration. Some cooperation may not only be better than none, but also better than more. Drawing upon this study, antitrust regulators who must evaluate patent pools can assemble a clearer and more complete understanding of their overall costs and benefits — a topic that Robert Merges and I recently wrote on in a related article. This Article is also helpful beyond patent law. The ethnographic methodology followed here reveals dynamics between outsiders and groups that theory alone has not captured. Scholars concerned with outsiders in other areas of law and policy can refine and build upon theory by applying a similar ethnographic approach

The Emergence of De-facto Standards

Increasingly, companies compete on platform technologies that bring together groups of users in two-sided networks. Examples include smartphones and on-line search engines. In industries governed by platform technologies, it is common to see one emerging as the de-facto standard because they are especially prone to network externalities (i.e. when the benefit that can be derived from a technology increases exponentially with the number of users). Competitions for the de-facto standard are high-stakes games. These ‘winner-take-all’ markets demonstrate very different competitive dynamics than markets in which many competitors can coexist relatively peacefully, as they often have a single tipping point which shifts market adoption to one particular technology. The academic field lacks a robust clarification on how firms can shape the odds of their technology emerging as the de-facto standard. This study develops an integrative framework and corresponding methodology for understanding the process by which a technology becomes the de-facto standard. By applying the framework to several technology competitions, insight is provided in how firm-, technology- and market-related elements influence technology competitions. Results indicate that the emergence of every de-facto standard displays a unique path. This path can be divided into six phases, and can be influenced by 40 unique elements, of which 19 are subject to strategic decision making. Patterns between technology competitions indicate a common set of focal points per phase

The role of institutional entrepreneurship in standard wars: the case of Blu-ray Disc

The study is to use institutional entrepreneurship perspective to complement the functionalist’s viewpoint to understand the process underlying collective action in a mature eco-system and how institutional entrepreneurs manage critical stakeholder relations, collective action and discursive activities in technical standard change processes. The standard war of Sony Blu-ray Disc vs. Toshiba HD DVD is used as a critical and intrinsic case. The functionalist’s viewpoints have paid much attentions to the numbers of customers adopting new technologies, and etc. By means of institutional entrepreneurship perspective, it claims that it does not matter about the number and amount, but it does matter about how focal firms make the markets believe that they have the abilities to win standard wars. The study further claims that the variables studied in functionalist’s viewpoint also have the meanings of institutional entrepreneurship perspective. Moreover, the BD and HD DVD standards are incremental innovations in a mature field where there are many things are settled down. Focal firms can easily forecast the expectations of the dominant institutional logics. The study contributes that institutional entrepreneurship perspective still provides the process insight to complement the functionalist’s viewpoint. This perspective can be applied in emerging field, where it is no dominant logics and the innovations are likely to be radical. The BD case represents a critical case. It can makes possible naturalistic generalization to other similar contexts. Eisenhardt’s principles are used to build theory from the case study. I borrowed techniques of open coding to analyze the data. The findings show that collective action (including critical stakeholder management and structuring collaboration capabilities) and discursive activities are the central features of institutional entrepreneurship. They have mutual relationship with the institutional entrepreneur’s resources (power and legitimacy). Furthermore, good collective action and discursive activities can lead to network effects and product performance

The role of institutional entrepreneurship in standard wars: the case of Blu-ray Disc

The study is to use institutional entrepreneurship perspective to complement the functionalist’s viewpoint to understand the process underlying collective action in a mature eco-system and how institutional entrepreneurs manage critical stakeholder relations, collective action and discursive activities in technical standard change processes. The standard war of Sony Blu-ray Disc vs. Toshiba HD DVD is used as a critical and intrinsic case. The functionalist’s viewpoints have paid much attentions to the numbers of customers adopting new technologies, and etc. By means of institutional entrepreneurship perspective, it claims that it does not matter about the number and amount, but it does matter about how focal firms make the markets believe that they have the abilities to win standard wars. The study further claims that the variables studied in functionalist’s viewpoint also have the meanings of institutional entrepreneurship perspective. Moreover, the BD and HD DVD standards are incremental innovations in a mature field where there are many things are settled down. Focal firms can easily forecast the expectations of the dominant institutional logics. The study contributes that institutional entrepreneurship perspective still provides the process insight to complement the functionalist’s viewpoint. This perspective can be applied in emerging field, where it is no dominant logics and the innovations are likely to be radical. The BD case represents a critical case. It can makes possible naturalistic generalization to other similar contexts. Eisenhardt’s principles are used to build theory from the case study. I borrowed techniques of open coding to analyze the data. The findings show that collective action (including critical stakeholder management and structuring collaboration capabilities) and discursive activities are the central features of institutional entrepreneurship. They have mutual relationship with the institutional entrepreneur’s resources (power and legitimacy). Furthermore, good collective action and discursive activities can lead to network effects and product performance

ENVRIZ: A Methodology for Resolving Conflicts between Product Functionality and Environmental Impact

Product development organizations are facing more pressure now than ever before to become sustainable. However, organizations are reluctant to compromise product functionality in order to create products that have less environmental impact than that required by regulations. Thus, engineers may face a conflict between improving product functionality and reducing environmental impact. The design for environment (DfE) tools currently available are inadequate with respect to helping engineers determine how to resolve this conflict during the conceptual design phase. The Theory of Inventive Problem Solving (TRIZ) which is based on Design by Analogy provides a promising conceptual design approach for this problem. Examples of products that simultaneously reduce environmental impact and improve product functionality can inspire engineers to do likewise. This research consists of 1.) Finding products and patents that overcome a contradiction between product functionality and environmental impact; 2.) Analyzing and determining the functionality parameter, environmental parameter, and TRIZ principle demonstrated by each example; 3.) Organizing this knowledge into an accessible DfE tool (matrices); and 4.) Developing a methodology for using the tool. The combination of the tool and methodology is named ENVRIZ, a merge of environment and TRIZ. After ENVRIZ was complete, an effectiveness study was completed to understand whether the new tool provided better solutions than TRIZ. Results of the study support that utilizing specific product examples from ENVRIZ provides better solutions compared to utilizing engineering principles from either ENVRIZ and TRIZ. Although the use of the tool on its own does not guarantee a reduction in a product's overall sustainability, the ENVRIZ methodology provides design engineers with a useful conceptual design tool to help overcome contradictions between improving product functionality and reducing environmental impact. Moreover, despite the limited number of examples identified to date, this research provides a framework and prototype that can be extended to incorporate new solutions to these contradictions