SEP Royalties, Investment Incentives and Total Welfare

There are concerns that lower SEP royalties might curb upstream incentives for investments in standards. This report is an assessment evaluating the economic basis for such concerns. This report presents the assessment, focusing on smartphones and cellular as well as Wi-Fi standards as the main royalty bearing connectivity technologies.

A report prepared by Raphaël De ConinckChristoph von MuellernSamuel Zimmermann and Kilian Müller (Charles River Associates) finds that even if lower SEP royalties reduce investments by SEP holders higher in the supply chain, total welfare would probably go up. The current level of SEP royalties likely already exceeds the social optimal level, e.g., due to patent hold-up – an issue amplified by end-device licensing. Thus, the increase in welfare from more downstream innovation will likely outweigh any potential decrease from lower upstream innovation investment.

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