Essential Patents and Standard Dynamics

Abstract

We investigate the effect of patents on the rate and direction of subsequent technological progress of standards. In particular, we focus upon the effect of including standard-essential patents. A recent stream of literature cautions against the negative effects of patents on subsequent innovation in complex technologies. We confront this idea with empirical evidence drawn from a large database of 3.500 ICT standards. In our analysis, we highlight more differentiated effects. First, the effect of patents depends upon the degree of fragmentation of ownership. Including essential patents on a standard has a strong positive effect on continuous technological progress of the standard. However, this effect weakens if ownership over patents is increasingly fragmented. Second, patents have opposite effects on continuous and discontinuous technological change of standards. While the inclusion of essential patents (in case of sufficiently concentrated ownership) encourages continuous technological progress, it significantly delays discontinuous standard replacements.

Keywords: Technology standards, standard essential patents, cumulative innovation

JEL Classification: O31, O33, O34