Tim Pohlmann

Typology of the Patent Troll Business

Patent trolls have many faces, since the media uses this expression in various ways. The patent troll phenomenon thus seems to be an ambiguous term that is discussed in several directions. This paper reveals that a patent troll as such has no distinct shape or appearance. Our analysis redeems a troll classification solely from firms’ market position, such as being non-practicing, and shows that a patent troll business can only be defined by the respective practice to enforce IPR. Using 10 case studies, of which five are treated in detail, the analysis reveals a distinct typology of IPR enforcement mechanisms and suggests a framework to assess the troll business. This paper is furthermore able to identify the nature of troll behavior to be: a) a best practice to enforce IP rights and b) a strategy that may create costs for affected industries. The differentiated troll analysis further reveals negative but also positive effects of the troll business on incentives to innovate.

Standard essential patents to boost financial returns

Numerous innovative applications build upon standardized technologies. These technologies increasingly incorporate standard essential patents (SEPs). It is crucial to own SEPs in order to achieve and maintain significant market shares. We test the influence of owning SEPs on a firms financial performance. In our analysis, we use a unique dataset of firms participating in international standard setting organizations (SSOs). Our results indicate a curvilinear (inverse U-shaped) relationship of owning SEPs on a firms return on assets. The curvilinear relationship suggests that firms should balance their patent portfolio by holding a share of patents, which are essential for standards, and by holding a share of patents on technologies that are not standardized. Our results further show that the effects of owning SEPs depend on the specific SSO as well as on the size of the patent portfolio. Our findings are a first step toward identifying and assessing the financial impact of patents essential to standards. Our empirical tests suggest that companies should pursue a common strategy for patenting and standardization to exploit patented inventions in technology fields where standards matter.

Typology of the patent troll business: Typology of the patent troll business

Patent trolls have many faces, since the media uses this expression in various ways. The patent troll phenomenon thus seems to be an ambiguous term that is discussed in several directions. This paper reveals that a patent troll as such has no distinct shape or appearance. Our analysis redeems a troll classification solely from firms’ market position, such as being nonpracticing, and shows that a patent troll business can only be defined by the respective practice to enforce intellectual property rights (IPR). Using 10 case studies, of which five are treated in detail, the analysis reveals a distinct typology of IPR enforcement mechanisms and suggests a framework to assess the troll business and its effects. This paper furthermore identifies the nature of troll behavior to be: (a) a practice to enforce IP rights enabling repayments for earlier innovation investments and (b) a strategy that may create costs to affected industries. The differentiated troll analysis reveals negative but also positive effects of the troll business on incentives to innovate.

Attributes and Dynamic Development Phases of Informal ICT Standards Consortia

Standards consortia are private industry alliances that serve a certain purpose and gather likeminded companies that share the same interest to sponsor and develop technologies for standardization. Compared to formal standard setting, participation in consortia is less bureaucratic, more efficient in reacting to market needs and allows, in respect to the tiered membership structures, a strategic influence of standard setting outcomes. Formal standardization is in contrast an often protracted process of development and negotiation. This paper tries to provide a broad and comprehensive picture of standards consortia and their dynamic development in the past ten years. Analyses show that consortia have distinct characteristics which help to explain and justify their presence in the standard setting context. The observation of consortia existence over time identifies relationships between the formation, termination and merger of consortia with respect to market and technology development. Furthermore the paper seeks to measure consortia performance with respect to organizational structures and market position. Therefore we test the likelihood of consortia termination. Results of a survival analysis reveal that the probability of consortia success is especially connected to structures that determine coordination among members. Additionally the scope and focus on technology and markets also influences if consortia remain in business over time.

Firms' cooperative activities as driving factors of patent declaration on technological standards

In complex technologies, IPR is owned among several firms and technical innovation often overlaps. In situations of divided technical leadership cooperative activities are crucial to influence technology adoption. Standardization is a process to commonly agree on a technology. This article investigates the patent declaration behavior of 250 companies which participate in international standard bodies. Over 60,000 patent declarations were analyzed on a firm level basis to show how cooperative activities influence the inclusion of patents in technology standards. Our empirical results show that the involvement in related standards consortia as well as being a member in patent pools favors patent declaration. While the pool variable rather controls for the default mechanism that firms can only join pools when they declare essential IPR, our empirical analysis is able to isolate the positive consortia effect by controlling for a wide range of firm and standard characteristics. We apply panel analysis and find evidence for a positive dynamic effect of entering a standards consortium. We also find significant results for exogenous membership changes in standards consortia. Our findings proof that firms which participate in standards consortia increase their negotiation power in technology selection processes and are thus able to introduce more patents into standards.

Mapping Standards to Patents Using Declarations of Standard-Essential Patents

This paper describes a new database of declared standard‐essential patents (SEPs), discusses methods for matching declared SEPs to specific standard documents, and presents empirical evidence on technology standards subject to declared SEPs. Although there is a growing body of empirical research using data on declared SEPs, this research has so far focused on the declared patents, and neglected the implications of SEP declarations for specific standards. Furthermore, we present a new methodology for matching standards with technology classes, using the classification of declared SEPs. This method allows identifying other standard‐related patents, and provides information on technological relationships between standards and standard‐related patenting. The paper discusses opportunities for new empirical research using databases of declared SEPs and data on patenting in standard‐related technology classes.

The interplay of patents and standards for information and communication technologies

ICT products are often interdependent and in some cases indispensably work together. Firms may thus compete on different market levels pursuing different business models to sponsor their proprietary technologies and to maintain market share for their products and services. Interoperability of products is a crucial factor for market success and firms evermore have to coordinate and set standards. These standardized technologies are in some cases protected by patents. Standard essential patents claim an invention that must be used by any company to complywith a technical standard. They are subject to a new anddifferent legal frameworkwhichgoes beyond the rights of regular patent law. This may influence incentives to develop and specify ICT standards, incentives to invest in R&D or incentives to file patents. Yet, the inclusion of intellectual property in standards, and the strategic behavior of its owners, can have far-reaching consequences for market structure, market entry, and sustained technical progress and innovation. This article discusses current legal and economic issues on the interplay of patents and standards and provides empirical insides on licensing, patenting and coordination. DOI 10.1515/pik-2014-0016 1 Technology Standards and the Interplay with IPR In the past years discussions about the interplay of IPR (intellectual property rights) and technological standards have been increasing. On the one hand this is due to the growing importance of technological standards in our interconnected information and communication society, where interoperability and common agreement on a technology is crucial to unlock innovation [8]. On the other hand recent problems of IPR and standards such as patent hold-up1, patent ambush2 or royalty stacking3 behavior have caused expensive litigation cases and raised questions in patent law, contract law and especially in antitrust law ([24]; [14]; [19]). In the field of ICT (Information and Communication Technology), standards frame a large number of innovative technologies (WiFi, LTE, RFID, DVD, Bluetooth etc.). The need for interoperability comes with an increasing sophistication of technology standards. In this context, standard setting is much more demanding in terms of R&D (research and development), representing a key strategic stake for companies that may increase the value of their patented technology by having it approved as part of an industry-wide standard. Patents that would necessarily be infringed by any implementation or adoption of a standard are called standard essential patents [26]. Although theneed for interoperability is not recent, the last two decades have seen standard setting in ICT evolve from mere coordination of common specifications to the joint development of complex technology platforms [2]. As a consequence, the number of patents infringed by standards has been increasing dramatically over the same period [26], raising concerns about the rising cost of royalties for users of some ICT standards [25]. Besides the growing technical sophistication of standards, this trend is due to a use of patents for a broader set of strategic motives [7] and more aggressive patenting strategies of firms [6] who seek to derive revenue from their standard essential patents. Empirical evidence indeed suggests that standard essential patents are more valuable than other patents [22] and that * Corresponding author: Tim Pohlmann: E-Mail: tim.pohlmann@tu-berlin.de Knut Blind: E-Mail: Knut.Blind@TU-Berlin.de 1 Patent hold-up is a situation in which a patent holder commits on licensing standard essential patents to FRAND terms, a standard developing organization relies on that promise and uses the patented technology to set a standard, but the patent holder subsequently breaches that promise and denies to license or demands higher license fees than promised. 2 A patent ambush occurs when a patent holder withholds information on standard essentiality during the participation in standard setting activities and subsequently asserts that the unknown essential patent is infringed by use of the standard as adopted. 3 Royalty stacking refers to situations in which a single standard potentially infringes on many patents. The standard adopter thus has to pay royalties to all patent holders resulting in a cumulative license like a stack of royalties. PIK 2014; 37(3): 189–195 Bereitgestellt von | Technische Universität Berlin Angemeldet Heruntergeladen am | 27.10.17 15:14 firms which own a large share of essential patents also enjoy a strong position in the market for standard-compliant products [5]. Furthermore recent empirical research has provided evidence that standard essential patents may directly increase a company’s financial returns [21]. Especially in the context of patent thickets4, empirical studies evidence an excessive patent filing behavior for certain technologies. The assumption is that companies try to protect their inventions with a preferably high number of patents. The increasing complexity of patent files may cause coordination problems and in some cases even leads to litigation [25]. 2 Standards Setting for ICT and Antitrust Concerns Technological standards often shape widely used technologies. UMTS and LTE ensure communication of mobile phones and smart phones. The Wi-Fi standard provides a wireless connection to local internet hosts. CDs and DVDs guarantee that decoders or players read discs and project movies onto TV screens and the MP3 standards allows us to listen to high quality music in compressed data formats. Most consumers are not aware that these standards incorporate hundreds of patents from multiple companies. Only in recent years famous litigation cases (Qualcomm v. Broadcom; Infineon v. Rambus; IP COM v. Nokia; Apple v. Samsung; etc.) drew attention to the often complex legal questions concerning standard setting and the role of IPR. Authorities of competition policy are concerned with standardization practices in terms of the direct coordination among competing companies that work together on a commonly agreed technology. One main antitrust issue is the open participation and appropriate technology selection [28] which addresses the legal necessity of the participation of Standard Setting Organizations (SSOs). Even though standard setting is very costly in terms of personnel and travel expenses [22] and thus usually only attracts big or medium sized firms, formal standards organizations are by law and policy open to all interested parties.5 Another antitrust concern is the appropriate standard selection. Since antitrust authorities themselves often lack technical expertise, this is difficult to evaluate. One can argue though, that the appropriate standard is selected when all affected stakeholders in the market agree to the standard [28]. The selection procedures of standard proposals always request consensus decisions, while majority voting is usually not accepted.6 However, some industry standards may not be set by formal standard organizations but by rather informal fora and consortia.7 Standards consortia may have differing policies and standardization procedures, which are less inclusive in terms of membership and require less consensus in terms of decision making [1]. The most discussed issue that became relevant for antitrust questions in the last decades is the role of patents that are essential to a standard. The fear is that essential patents may leverage market power and lead to exclusive effects [19]. Whereas patents are actually intended to allow their owners to exclude others from using the protected invention, the main objective of standards is to encourage the spread and wide implementation of the standardized technology [16]. Manufacturers that create products are not able to bypass standards or invent around standardized technologies, since standards shape the interface to connect, communicate or work on or with other products and platforms. A smart phone without UMTS or LTE adoption, for example, would not be able to connect to any network. A patent that blocks a standard could thus also block a whole technology or evenwhole industries [17]. This apparent conflict is resolved by licensing. Standardization participants are expected to allow others the use of their technology, but they can demand adequate royalties. SSOs often mandatorily require firms participating in standard setting to disclose any patent that might turn out to be essential for the standard in question. Furthermore holders of such patents have to submit a declaration whether they accept to commit to fair, reasonable and non-discriminatory terms of licensing for these patents (FRAND commitments). If a firm discloses a patent and refuses to commit to such licensing terms, the SSO will usually set the standard excluding the IPR protected technology. In a recent survey companies state that securing freedom to operate andmarket entry are the most important reasons for owning standard essential patents (figure 1). Even though standardization may be accompanied by complex licensingagreements, the rules for the licensing of 4 Patent thickets refer to a situation in which a large number of patent claims overlap like a dense web. 5 Informal standards consortia sometimes request high member fees or only allow participation by invitation. However these practices to not apply for international standards organizations such as ISO, IEC, CEN, ITU, ETSI or IEEE. 6 Find details in the ISO guidelines under http://www.iso.org/iso/ guidance_liaison-organizations.pdf. 7 Standards consortia are rather informal groups of entities with the goal of setting standards or agreeing on a common specification. Well known standards consortia are theW3C or the IETF. 190 Tim Pohlmann and Knut Blind Bereitgestellt von | Technische Universität Berlin Angemeldet Heruntergeladen am | 27.10.17 15:14 Figure 1: Reasons why companies want to own standard essential patents.8 patents essential

Selected Quantitative Studies of Patents in Standards

After an introduction into the principle data and methodology, this study starts by providing a quantitative overview of the general features of standard essential patents (also called SEPs). It considers the occurrence of essential patents, how their existence has developed over time, and how essential patents are distributed among SSOs, technology areas, standards, and owners (including their business models). It also considers the legal status of such patents, for example whether they are actually enforceable. The study continues with an analysis on how SEPs differ from ‘regular’ patents. To make a fair comparison, a matched control set of patents was developed. We consider and compare the citation performance, the family size, and the patent grant likelihood. The final four chapters of the study focus on a set of specific topics: (1) ‘blanket disclosures’, (2) essential patent transfer, (3) patent pools, and (4) and litigation.

R&D coordination in standard setting organizations: The role of consortia

We analyze R&D competition and cooperation between firms involved in the development of a technology standard. Our model captures two types of incentives these firms are subject to: free-riding due to the public good nature of the standard and patent races in order to derive royalties from essential patents. As a consequence, R&D may be excessive or insufficient as compared to the collective optimum. Our goal is to test if consortia can address any type of inefficiency, by either reducing or increasing collective R&D investment. We address this question empirically on a large dataset of ICT standards, by assessing the effect of consortia on the number of standard-related patents filed by companies. After sorting standards entailing over or underinvestment, our results confirm that in the first case consortia have a chilling effect on patent filings, while it has an inflating effect in the second case.