Testing for Bias to Suppress Royalties for Standard-Essential Patents
The Institute of Electrical and Electronics Engineers (IEEE) is a standards-setting organization (SSO). In 2015, it ratified amendments to its patent policy to mandate that a reasonable and nondiscriminatory (RAND) royalty for a standard-essential patent (SEP)—more precisely, an Essential Patent Claim for an IEEE standard—exclude any value attributable to the standard, and to deny an SEP holder the right to seek an injunction against an unlicensed implementer until appellate review is exhausted. The amendments further say that the determination of a RAND royalty “should,” without limitation, (1) be derived from the value of the smallest salable compliant implementation of an IEEE standard that practices an SEP; (2) comport with a reasonable aggregate royalty burden of the relevant standard; and (3) disregard comparable license agreements obtained under the implicit or explicit threat of an injunction. Because the revisions place strict limitations on an SEP holder’s ability to enforce its patent rights against infringers, they truncate the upper range of the distribution of bilaterally negotiated RAND royalties and thus unambiguously reduce the compensation that the SEP holder may obtain for its technological contributions to the IEEE standards. The IEEE’s patent-policy revisions became effective in March 2015.
The IEEE’s 2015 bylaw amendments are highly significant because each unambiguously reduces the compensation that an SEP holder can obtain for its technological contributions to the IEEE’s standards. Throughout the development of those bylaw amendments, sixteen companies submitted 680 comments on four drafts of the proposed amendments and two drafts of a supporting informational document that an ad hoc drafting committee of the IEEE released for public comment. The ad hoc committee responded to the suggested revisions in each comment, either accepting them and implementing them into the next draft, accepting them in principle, or rejecting them. I find a strong negative correlation between the comment submitter’s status as a firm initially opposed to the revisions (a group primarily consisting of net SEP licensors) and the ad hoc committee’s incorporation of the submitter’s proposed revision in the subsequently revised draft. The treatment of the comments by the ad hoc committee exhibits a statistically significant bias against the firms that opposed the bylaw amendments—primarily large SEP holders—and in favor of revisions designed to devalue SEPs.
J. Gregory Sidak, Testing for Bias to Suppress Royalties for Standard-Essential Patents, 1 Criterion J. on Innovation 301 (2016).