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January 16, 2014
Report on Standard-Essential Patents by Brattle Academic Advisor Josh Lerner Featured in Forbes Article

A recent article published in Forbes discusses a recent paper, “Standard-Essential Patents,” published by Brattle academic advisor Josh Lerner and Jean Tirole, Member of the Toulouse School of Economics (TSE). The paper investigates ways to make standard-essential patents (SEPs) less volatile and more efficient and makes the case for increased government involvement.

In the high-tech industry, it is common practice for standards for technology to be developed by a governing body with the goal of promoting widespread adoption and compatibility among various devices. Intellectual property owners often strive to have their patents included in these standards so that, in order to comply with any given standard, it is necessary to license their patents. Such patents are known as standard-essential patents (SEPs). Standards bodies often act as regulators, setting rules in order to prevent the owners of SEPs from abusing their newfound power. But the rules tend to be surprisingly vague, especially considering the technical specifications of the patents at hand. In part because of the potential profits at stake, SEPs have been at the center of recent litigation in the smartphone industry.

The article, “A Way To Mitigate Smartphone Patent Litigation,” discusses Mr. Lerner’s paper, which proposes potential ways to prevent future patent-related litigation. The authors argue that simply allowing participants to discuss royalty rates for their patents would not be completely effective since these discussions run the risk of expropriation of IP holders, as even balanced, standard-setting organizations potentially will ‘blackmail’ IP owners to accept low prices in exchange for their functionalities being selected into the standard. The paper goes on to explore and endorse the idea of “structured price commitments.” In these, all holders of potentially relevant patents agree to a price cap on royalties just before a standard is set, after which the standard-setting body is prohibited from discussing pricing. Price commitments have the potential to create a scenario that is indeed fair, reasonable, and nondiscriminatory, but may not work unless everyone agrees to adopt them. The paper concludes that the only way to make structured pricing work is to enact a federal policy that mandates it—despite inevitable protests from big firms with thousands of standards-potential patents.

To read the article in its entirety, please visit the Forbes website.