Ex Ante Agreements in Standard Setting and Patent-Pool Formation

Authors


  • *We thank Reiko Aoki, Yassine Lefouili, Gerard Llobet, Daniel Spulber, Grega Smrkolj, and Jean Tirole for detailed comments and suggestions. We also thank seminar participants at Harvard Business School, the 2013 Searle Center Roundtable on Technology Standards, Innovation, and Market Standards (Northwestern University), the 11th Annual International Industrial Organization Conference (Boston, MA), the 7th Conference on the Economics of Intellectual Property, Software and the Internet (Toulouse School of Economics), the 40th Annual Conference of the European Association for Research in Industrial Economics (Évora, Portugal), Pontificia Universidad Católica de Chile, Universidad Alberto Hurtado, and the Center for Applied Economics at Universidad de Chile for useful comments and suggestions. We gratefully acknowledge financial support from FONDECYT Initiation to Research Grant No. 11110043 (Llanes) and from Instituto Milenio SCI Project No. P05-004F (Poblete).

Abstract

We present a model of standard setting and patent-pool formation. We study the effects of alternative standard-setting and pool-formation rules on technology choice, prices, and welfare. We find three main results. First, we show that allowing patent pools may reduce welfare when standards are negotiated and patent pools need to be ex post incentive compatible. Second, we show that ranking combinations of standard-setting and pool-formation rules in welfare terms when patent pools need to be ex post incentive compatible is not possible. Third, we show that allowing firms to sign ex ante agreements regarding pool participation dominates—in terms of welfare—any other policy rule. This policy does not require the standard-setting organization to have information on patent ownership, the terms of license agreements, or the value added of patents.

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