Payments and Participation: The Incentives to Join Cooperative Standard Setting Efforts

Anne Layne-Farrar

Charles River Associates; Northwestern University

Gerard Llobet

Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR)

Jorge Padilla

Compass Lexecon

July 29, 2011

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.

Number of Pages in PDF File: 42

Keywords: Intellectual Property, Standard Setting Organizations, Licensing, Incremental Value

JEL Classification: L15, L24, O31, O34

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Date posted: August 14, 2011  

Suggested Citation

Layne-Farrar, Anne and Llobet, Gerard and Padilla, Jorge, Payments and Participation: The Incentives to Join Cooperative Standard Setting Efforts (July 29, 2011). Available at SSRN: https://ssrn.com/abstract=1904959 or http://dx.doi.org/10.2139/ssrn.1904959

Contact Information

Anne Layne-Farrar (Contact Author)
Charles River Associates ( email )
1 South Wacker Drive
Suite 3400
Chicago, IL 60606
United States
312-377-9238 (Phone)
HOME PAGE: http://www.crai.com
Northwestern University ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
Gerard Llobet
Centre for Monetary and Financial Studies (CEMFI) ( email )
Casado del Alisal 5
28014 Madrid
34 91 429 0551 (Phone)
34 91 429 1056 (Fax)
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Jorge Padilla
Compass Lexecon ( email )
Paseo de la Castellana 7
Madrid, 28046
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