Repeated interaction in standard setting

Abstract

Standardization may allow the owners of standard‐essential patents to charge higher royalties than would have been negotiated ex ante. In practice, however, standard‐setting efforts are often characterized by repeated interaction and complementarities among technologies. These features give firms that contribute technology to standards both the ability and the incentive to avoid excessive royalties by threatening to exclude other technology contributors from future rounds of standardization if they charge royalties exceeding ‘fair, reasonable, and nondiscriminatory’ (FRAND) levels. We show that such an outcome can be sustained as a subgame‐perfect equilibrium of a repeated standard‐setting game and examine how the decision‐making rules of standard‐setting organizations (SSOs) affect the sustainability of FRAND royalties. Our analysis provides a novel justification for super‐majority requirements and other rules frequently adopted by SSOs.

The Link Between Standardization and Economic Growth

“…Schumpeterian growth theory (Aghion et al, 2015) predicts that incumbents do the most R&D. Incumbents also do the most standards development, according to empirical evidence (Larouche & Schuett, 2019). Existing empirical evidence on the impact of standards is scant (Blind & Jungmittag, 2008;Rysman & Simcoe, 2008;Baron & Schmidt, 2017).…”

Membership, Governance, and Lobbying in Standard-Setting Organizations

“…However, under certain conditions, ex-ante licensing can be less efficient than ex-post licensing (Tarantino, 2015). 10 Moreover, recently it has been shown that repeated interaction can help make FRAND rates binding such that innovators refrain from charging unreasonably high royalty rates as they expect future interaction within standard-setting (Larouche and Schuett, 2019;Llanes, 2019).…”