Leveraging Standard Essential Patents for Capturing Innovation Rents: The Strategic Disclosure of License Rules

Author Name Dong HUO (Harbin Institute of Technology, Shenzhen) / Jianwei DANG (Tongji University) / MOTOHASHI Kazuyuki (Faculty Fellow, RIETI)
Creation Date/NO. March 2021 21-E-028
Research Project Digitalization and Innovation Ecosystem: A Holistic approach
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A general view of standard essential patents (SEPs) is that they provide profiting opportunities by licensing-out, in general, under the FRAND (Fair, reasonable and non-discriminatory) terms. However, a large part of SEPs holders declares "generous" free-license terms, thus abandon direct profiting opportunities. A patent can be used not only for appropriating rent from itself, but also for using it as a leverage to sustain the patent holder's competitive position in the market. This paper empirically addresses the determinants of such motivation for patenting (leverage strategy), by using the license terms of SEPs (free vs. royalty-bearing, and the inclusion of reciprocal terms). Using intellectual property rights disclosure data of IETF, a standard development organization, this paper investigates both firm-level and patent-level factors in shaping the license terms based on three-stage estimation of structural equations. Two types of strategy, "generic" leveraging against all potential competitors in a technology market and "specific" leveraging for keeping firm's competitive position to specific competitor as a licensee, are identified, and it is found that the former motivation works stronger for SEPs holders.