Research Shows Key Patent Licensing Flaws Increase Costs and Litigation, Reduce Innovation – CCIA

Washington – A new economic analysis from the CCIA Research Center explores how the licensing process for standard essential patents (SEPs) often fails to be fair, reasonable, and non-discriminatory (FRAND), harming innovation, efficiency, and consumers. The authors find that despite the requirement that SEP owners license on FRAND terms, extensive differences in interpretation of FRAND create uncertainty and result in reduced patent implementation and increased litigation. The paper finds there is risk of overcompensation of patent owners and reduced implementation in cases where SEP owners exclusively license at the original equipment manufacturer (OEM) level in industries where OEMs invest significantly in their brands. The research shows that a more literal interpretation of the “fair,” “reasonable,” and “non-discriminatory” terms and more transparency of actual FRAND royalty rates could reduce transaction costs, increase market efficiencies, and encourage innovation. As European policymakers consider the European Commission’s proposed SEP regulation, this new report shows that there is an important SEP problem to be solved. The Computer & Communications Industry Association has advocated for balanced patent policy that advances innovation for over 50 years. The following can be attributed to CCIA Chief Economist and Research Center Director Trevor Wagener: “The latest research on Standard Essential Patents (SEPs) shows that there are potential problems in SEP licensing that may result in excessive royalties beyond the technical contribution of a patent. When patent owners refuse to license patents except to original equipment manufacturers (OEMs) in industries where OEMs invest heavily in their brands, it creates a risk of excessive royalties based on OEM investments in brand value. Excessive royalties may discourage patent implementation, reduce products available for consumers, and reduce the incentive for OEMs to invest in brand quality.”