Standard-essential patents and incentives for innovation

TILEC Discussion Paper No. 2020-025

CentER Discussion Paper No. 2020-034

25 Pages Posted: 18 Dec 2020

See all articles by Chayanin Wipusanawan

Chayanin Wipusanawan

Tilburg University - Tilburg University School of Economics and Management

Date Written: December 16, 2020

Abstract

Patent holders whose patents are essential to a standard are usually required to license their patents under fair, reasonable, and non-discriminatory (FRAND) terms. This requirement is often interpreted as a price cap such that royalties for the patents do not exceed their pre-standardisation incremental values. Using a theoretical model of innovators with interacting technologies, I consider the problem of choosing the incentive scheme to induce welfare-maximising research investments under the condition that it only uses the values created by the innovators, and analyse the prevalent interpretation of FRAND compared to the optimal scheme. It shows that in some cases, this incremental value rule does not lead to the efficient level of innovation investment.

Keywords: standardisation, standard-essential patents, FRAND, innovation incentives

JEL Classification: L15, O31, O34, O38

Suggested Citation

Wipusanawan, Chayanin, Standard-essential patents and incentives for innovation (December 16, 2020). TILEC Discussion Paper No. 2020-025, CentER Discussion Paper No. 2020-034, Available at SSRN: https://ssrn.com/abstract=3749905 or http://dx.doi.org/10.2139/ssrn.3749905

Chayanin Wipusanawan (Contact Author)

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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