Are You Still in? – The Impact of Licensing Requirements on the Composition of Standards Setting Organizations

Thimo Pascal Stoll, Max Planck Institute for Innovation and Competition

9/02/2015
(Original Publish Date: 12/8/2014)

Opportunistic behavior such as hold-up by owners of standard-essential patents increasingly affects standardization processes as well as the implementation of standards. The vague fair, reasonable and non-discriminatory (FRAND) licensing requirement applied in the majority of standards setting organizations (SSOs) only mitigates hold-up in the rare case of categorical refusal to license. In recent years, public authorities and some SSOs have therefore intensified their efforts to promote royalty-free (RF) standards. While this approach definitely contributes to a faster standards development process and eventually faster implementation, certain important contributors might decide to leave an SSO or not to join in the first place if they have to forego any licensing revenues from standard-essential patents. To analyze the substitutability of the two licensing regimes, this paper assesses the impact of the IP policy change at the SSO OASIS in April 2005. Based on a unique dataset, a survival analysis finds that the change from a FRAND to a RF licensing regime is correlated with a significant decrease in the overall number of new SSO members. Second, among the new members the share of non-profit research organizations and systems integrators significantly increases in the aftermath of the change. Third, the change has a positive impact on the duration for which the producers of physical goods remain at OASIS. The analysis suggests that SSOs and public authorities have to consider important trade-offs regarding static versus dynamic efficiency when considering to introduce or promote RF licensing requirements.