The Value of Royalty Free Standards

Brussels, 10 January 2023 – Royalty-Free (“RF”) licensing of standard-essential patents (“SEPs”) has enabled the rapid proliferation of some of the most successful and widely adopted technical standards, including technologies found in nearly every smartphone and laptop on the market today.  While there have also been many widely successful royalty-bearing standards for which licenses to SEPs are promised on fair, reasonable, and non-discriminatory (“FRAND”) terms, where the market opportunities exist to incentivize innovators to pursue and support RF standards, those RF standards provide enormous consumer benefits.

As detailed in this paper, when participants choose to develop RF standards, the following benefits are observed:

  • Competition between RF and royalty-bearing standards promotes innovation and consumer welfare because contributors strive to improve the quality of the standards and the price of products is reduced.  In effect, consumers benefit by having more available options.
  • RF licensing simplifies and substantially lowers the costs of using standardized technologies, and thus promotes speedy and expansive adoption of technical standards.  Simplifying and lowering implementation costs in this way reduces barriers to entry for everyone and especially for small and midsize potential licensees, including licensees producing low-margin products.  Those firms can efficiently incorporate interoperability standards with little to no royalty costs.
  • The propensity for patent “hold up” and other abuses by SEP holders, which can raise the costs of implementation beyond what the marketplace can reasonably bear and inhibit innovation, is reduced or eliminated for standards produced under an RF licensing policy.
  • Consumers benefit from RF licensing policies because they promote quicker and easier consumer access to transformative technologies, and broader downstream competition among products, resulting in more options, better quality, and lower prices.
  • Even without the prospect of contributors monetizing their SEPs, RF standards have attracted substantial technical contributions from many of the world’s most innovative companies, which are incentivized by the expansive marketplace opportunities created by the rapid proliferation of the standards.  The success of RF standards proves that profits that follow from market development and expansion create significant incentives to innovate, which can in many cases be even more powerful than the potential to monetize patents.

In this paper, we address these and other procompetitive benefits of RF licensing.  We also raise and respond to claims that RF licensing policies act to reduce innovation incentives, claims that are both logically flawed and contrary to the evidence.

Download the full position paper here

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