'Essential' Patents, FRAND Royalties and Technological Standards

Mathias Dewatripont () and Patrick Legros

No 6925, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this paper we abandon the usual assumption that patents bring known benefits to the industry or that their benefits are known to all parties. When royalty payments are increasing in one’s patent portfolio, private information about the quality of patents leads to a variety of distortions, in particular the incentives of firms to 'pad' by contributing weak patents. Three main results that emerge from the analysis are that: (i) the threat of court disputes reduces incentives to pad but at the cost of lower production of strong patents; (ii) mitigating this undesirable side-effect calls for a simultaneous increase in the cost of padding, that is, a better filtering of patent applications; (iii) upstream firms have more incentives to pad than vertically-integrated firms which internalize the fact that patent proliferation raises the share of profits going to the upstream segment of the industry but at the expense of its downstream segment. This seems consistent with recent evidence concerning padding.

Keywords: Frand; padding; royalty; Standard setting organization; weak patent (search for similar items in EconPapers)
JEL-codes: L24 L40 O31 O34 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ino and nep-ipr
Date: 2008-08
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