An empirical study on the determinants of essential patent claims in compatibility standards

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ContentslistsavailableatScienceDirect

Research

Policy

j o ur na l ho me p a g e :w w w . e l s e v i e r . c o m / l o c a t e / r e s p o l

An

empirical

study

on

the

determinants

of

essential

patent

claims

in

compatibility

standards

夽

Rudi

Bekkers

a,b,∗

_,

_René

_Bongard

c

_,

_Alessandro

_Nuvolari

d

a_Eindhoven_Centre_for_Innovation_Studies_(ECIS),_School_of_Innovation_Sciences,_Eindhoven_University_of_Technology,_Eindhoven,_The_Netherlands

b_Dialogic_Innovatie_&_Interactie,_Utrecht,_The_Netherlands

c_Department_of_Business_Statistics,_Statistics_Netherlands,_Heerlen,_The_Netherlands

d_{LEM—Laboratory}_of_Economics_and_Management,_Sant’Anna_School_of_Advanced_Studies,_Pisa,_Italy

a

r

t

i

c

l

e

i

n

f

o

Articlehistory:

Received4November2009

Receivedinrevisedform18April2011

Accepted7May2011

Available online 11 June 2011 Keywords: Essentialpatents Compatibilitystandards IPRpolicies Mobiletelecommunications W-CDMA

Economicsofinformationsystems

a

b

s

t

r

a

c

t

Inthefieldofcompatibilitystandards,anincreasingnumberofcompaniesclaimtoownso-calledessential patents(i.e.thosepatentsthatareindispensablefordesigningandmanufacturingproductsconforming tothestandard).Itiswidelybelievedthattheownershipofsuchpatentsisaveryvaluablebargaining toolincross-licensenegotiations,whilefornon-producingfirmssuchpatentsmayresultina substan-tialstreamoflicensingrevenues.Inthispaperwestudythedeterminantsofessentialpatentclaims incompatibilitystandards.Inparticular,weassesstheroleoftwomainfactors:thesignificanceofthe technologicalsolutioncontainedinthepatentandtheinvolvementoftheapplicantofthepatentin thestandardisationprocess.WeexaminethecaseofW-CDMA,oneofthemostsuccessfulstandardsin mobiletelecommunications.Wecomparethepatentsclaimedessentialforthisstandardwithacontrol groupofrandomlyselected,unclaimedpatentscoveringthesametimeperiodandtechnologyclasses. Wefindempiricalevidencethatbothfactorshavesignificantimpactontheprobabilitythatapatentis claimedasessential,buttheinvolvementinthestandardisationprocessisastrongerdeterminantthan thetechnicalvalue(‘merit’)ofthepatent.Onthebasisofourfindings,weofferpolicyrecommendations.

1. Introduction

Standards have a fascinating and complex relationship with patents.Whereasstandardsaimatensuringequalaccesstothe technologyforallstakeholders,patentsestablishtemporary, exclu-sionaryrightsontheuseofinventions.Theensuingtensionmaybe particularlyproblematicinthecaseofso-calledessentialpatents,i.e. patentsthatareindispensibleinordertomanufactureaproductor offeraservicebasedonthestandardinquestion.1_To_prevent_the

夽 Theviewsexpressedinthispaperarethoseoftheauthor(s)anddonot

neces-sarilyreﬂectthepoliciesofStatisticsNetherlands.

∗ Correspondingauthorat:EindhovenUniversityofTechnology,RoomIPO2.36,

P.O.Box513,5600BMEindhoven,TheNetherlands.Tel.:+31402475621;

fax:+31402474646.

E-mailaddresses:[email protected](R.Bekkers),[email protected]

(R.Bongard),[email protected](A.Nuvolari).

1_This_is_reﬂected_in_the_deﬁnition_that_the_European_{Telecommunications}

Stan-dardsInstitute(ETSI)adoptedfor‘essentiality’:‘[...]thatitisnotpossibleontechnical

(butnotcommercial)grounds,takingintoaccountnormaltechnicalpracticeandthe

stateoftheartgenerallyavailableatthetimeofstandardization,tomake,sell,lease,

otherwisedisposeof,repair,useoroperateequipmentormethodswhichcomplywith

astandardwithoutinfringingthatIPR.’(ETSIRulesofProcedure,26November2008,

retrievedfromhttp://www.etsi.org).

situationinwhichstandardscouldnotbeimplementedinpractice duetotheexistenceofpatentscoveringinventionsrelatedwith theseessentialcomponentsoftheproductorserviceinquestion, standardsbodieshavedevelopedpoliciesthatestablishrulesfor theirmembersconcerningtheavailabilityandlicensingconditions foressentialpatents.Mostofthesepoliciesrequirethemembers ofthestandardsbodytodisclose(‘declare’)theiressentialpatents. Primafacie,suchdisclosuresmaybeseenasrevealingthetechnical valueofthepatentforthestandardinquestion:i.e.thepatented technologyischosentobecomepartofthestandardbyvirtueof itscontributiontotechnicalperformance,cost-effectiveness,etc. However, the technical content of standards is actually drawn upbymembersofastandardsbody,thusofferingmembersthat areinvolvedseveraltypesofopportunitiestoinﬂuencethevery technicalcontentofstandards.Asaconsequence,patentsmaybe broughtintothestandard(andsubsequentlydeclaredtobe essen-tial)becauseofstrategicreasons.Afterall,ownershipofessential patentsbringsmanyadvantages,suchaslicensingrevenues,and ‘exchangechips’thatopenthedoortoattractivecross-licensing arrangements.

Thispaperexaminestowhatdegreepatentsareclaimedtobe essentialinastandardisationprocessonthebasisofthemeritof theirspeciﬁctechnologicalcontribution,ortheresultofthepatent

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owner’sinvolvementinthestandardisationprocess(andthe strate-gicopportunitiesthatcomealong),orboth.Todoso,weperforman extensiveanalysisonapubliclyavailablelistofself-declared essen-tialpatents for W-CDMA, the most successful third-generation standard for mobiletelecommunications worldwide. The paper isorganisedasfollows.Section2introducesthephenomenonof essentialpatentsanddevelopstwohypothesesconcerningtheir claimingbehaviour.Section3introducestheempiricaldataweuse totestthesehypotheses.Inparticular,itcontainsanintroduction tothetechnologyinquestion(i.e.W-CDMA),adiscussionofour datasetfollowedbydescriptivestatisticsandsomepreliminary analyses.Section4presentstheresultsofthetestsofthe hypoth-esiscarriedoutwithamultivariatemodel.Section5concludesthe paperanddiscussesitsimplications.

2. Essentialpatentsandcompatibilitystandards

Standardscanevolve inseveralways. Sometimes,a particu-larfirmdevelopsasetoftechnicalspecificationsthatbecomesso successfulthatitisregardedasanindustrystandard.Thefirmin questionmightormightnotallowotherfirmstomakeproducts orsellservicesbasedonitsindustrystandard,bypublicisingthe detailedspecificationsand/orgrantinglicenses.Incase thefirm obtainsadominantmarketposition,competitionauthoritiesmay trytoenforcethat third partieshave betteraccesstothe stan-dard(e.g.thedecisionsoftheEuropeanCommissiononMicrosoft Windows).Inmostcases,however,standardsaretheresultofa negotiationprocessbetweentwo ormore(independent) stake-holders(FunkandMethe,2001).Theexplicitaimofthisprocess isthecreationofastandardthatwillbewidelyadoptedby stake-holdersand/orotherparties.Wecandistinguishbetweenformal standardsbodiesontheonehand,andconsortiaandforaonthe other.Formalbodiesmustadheretoanumberofcriteria, includ-ingopennesstoparticipate,consensus-baseddecision-making/due process,openaccesstodocumentation,andintellectualproperty rules(Krechmer,1998,2005;Andersen,2008).Althoughvarious differentdefinitionshavebeenproposedintheliterature,thispaper willrefertoformalstandardsbodiesasthosethatarerecognised assuchbypublicauthorities(for example,inEurope,Directive 98/34/EC designates CEN, CENELEC, and ETSI to be recognised regionalstandards bodies).Consortiaand fora mightalso meet thesecriteria,but mayalsochoosenottodo so.Dependingon theexact context,firmsmaypreferonetypeofstandardsbody (also calledstandards developing organisations SDOs)over the other;thereforeformalstandardsbodies,consortiaandfora(and themanysub-typesonecandistinguishhere)maybeseenas com-petingagainsteachotherinthesame“market”.

Although there were some early cases of tension between patents and standards this was not considered to be a major issue until the late 1980s. By that time, the first major clash hadoccurredinthetelecommunicationssector,morespecifically whentheEuropeanTelecommunicationsStandardsInstitute(ETSI) developedGSM,astandardformobiletelephony.Theclashtook placeagainstabackgroundofliberalisationandprivatisationinthe Europeantelecommunicationssector,theso-calledpro-patentera (Granstrand,2005),andthedisappearanceofexclusive,long-term relationsbetweennetworkoperatorsandtheirsuppliers.Thisfirst clashhasbeenextensivelydocumentedintheliterature(Shurmer andLea,1995;Iversen,1999;Wilkinson,1991;Bekkers,2001)and maybeconsideredasthestartingpointforstandardsettingbodies todevelopspecificrulesconcerningpatentownership.

Themostcommonwayinwhichstandard-developing organisa-tionsnowdealwithpatentsisknownas(F)RAND,anacronymthat referstotheFair,ReasonableandNon-discriminatoryconditions thatpartiesneedtoensureforthelicensesoftheiressentialpatents.

Whilethe(F)RANDpoliciesinprinciplecover alltypesof Intel-lectual Property Rights (IPR), including copyrights, trademarks, databaserights,industrialdesignrights,patentsarevirtuallythe onlycategoryofsuchrightsthathavebeenclaimedessentialto date;hencethispaperwillusethetermspatentsandIPRsas inter-changeable.The(F)RANDpolicywaspioneeredbyETSIintheearly 1990s(andrevisedandreﬁnedseveraltimes).Nowadays,virtually allformalSDOshaveadopteda(F)RANDpolicy,aswellasmany consortiaandfora,thoughtherearenotableexceptionssuchas W3C,abodythatrequiresallpatentstoberoyalty-free.Inshort, (F)RAND’sprinciplesareasfollows:(1)HoldersofIPR,memberor not,willberewardedinasuitableandfairmanner;(2)Members willmakeareasonableefforttoinformtheSDOofrelevantIPRs ofwhichtheyareaware.Iftheyproposeatechnicaldesigntothe SDOtheywillalso,ingoodfaith,drawattentiontoIPRsthatcould becomeessentialoncethatproposalisadopted;(3)Ifanessential IPRisidentiﬁed,theSDOwillrequestitsholder,memberornot, tomakelicensesavailableunder(F)RANDterms;(4)Memberscan choosenottolicenseanIPR;iftheypersevere,theSDOwilltryto changethestandardsoitnolongerdrawsuponthatpatent.Ifitdoes notsucceed,itwillwithdrawthestandardorstopworkingonit. Notethatalthoughthispolicydoescreaterightsfornon-members (e.g.regardinglicensingconditionsthatmemberscanimpose),it cannotcreateobligationsfornon-membersasitdoesnothaveany legalrelationshipwithsuchthirdparties.

Usually,standardsonlydeﬁnetheinterfacesbetweenelements ofalargersystem,notthewaytheseelementsneedtobemade. Thisensuresa maximumincentivetoinnovate. Inthis context, itisimportanttonotethat the(F)RANDpolicyrefersto ‘essen-tialpatents’.Thesearepatentsthataresobasictotheinterfaces deﬁnedbythestandardthatitisimpossibletodesignanydevice thatcomplieswiththeseinterfaceswithoutinfringingthepatent.If therearealternativewaystodesignsomethingthatcomplieswith thestandard(evenwhentheyaremoreexpensivetoimplement), thepatentinquestionisnolongeressential.Obviously,a partic-ularlycriticalissueishowtherequirementoffair,reasonableand non-discriminatoryconditionsistobeinterpreted.Doesthe licens-ingfeeneedtobereasonablefromtheperspectiveofthevalueof thepatent,orreasonablegiventhetotalnumberofotherpatents thatareessentialtothestandardandthetotallicensingfeethat implementerscanaffordorwanttoafford?

2.1. Thetechnologicalvalueofthepatentasadeterminantof essentiality

Usuallya standard must attain a number of different,often conﬂictingfunctionalrequirements. For example,intheareaof telecommunications,astandardformobileinternetdataservices mightaimto(1)offerahighdatarate(speed),(2)inalarge, contin-uouscoveragearea,(3)allowingtheusertomovewithspeedsup to300km/h,(4)consuminglowpowerinordertooptimisebattery life,(5)requiringaminimumnumberofcellsitesorantenna tow-ers,(6)whilebeingrobusttonoiseandothertypesofinterference and(7)atlowcostsforbasestationsandterminals.Clearly,certain technologicalsolutionsmaybeabletodealwithoneormoreof theserequirementsbetterthanothers,andgiventhehigh propen-sitytopatent prevailingin many“hightech” sectors, itis very likelythatmanyoftheseattractivetechnologicalsolutionswillbe patented.Hence,itislikelythatpatentedtechnologiesmaythenbe chosentobeincludedinastandardbecauseoftheirattractiveness. Insomecases,apatentedtechnologymaybetheonlyfeasibleway torealisethefunctionalrequirementsofthestandardinquestion. Inothercases,thepatentedtechnologymaynotbetheonly solu-tionbutstillbethebestwaytoachievethestandardrequirements, byofferingahigherperformanceormakingtheimplementation morecost-effective,etc.Inbothcases,thepatentedtechnologyhas

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ahighdegreeofmerit—ortechnologicalvalue,asonemightcallit. Thisleadstoourﬁrsthypothesis:

Hypothesis 1. The intrinsic technological value of a patent

increasesthelikelihoodofthatthepatentwillbeclaimedessential toastandard.

Ifweassumethattheintrinsictechnologicalvalueofapatented technologicalsolutionforthestandardisthesoledeterminantof itsinclusioninthestandard(andthatstrategicconsiderations,as willbediscussedbelow,donotplayanyrole)thenwecanexpect thatessentialpatentsarelikelytobeofhighervaluethanother patents,all other thingsbeing equal. Economistsof innovation haveattemptedtoassessthevalueofpatentsusinganumberof characteristicssuchas citations received, renewals,family size, opposition,etc.(VanZeebroeck,2011providesadetailedsurvey ofthisliterature).Sofar,thenumberofforwardcitations(i.e.,the citationsreceivedby apatent) issurely themostpopular indi-catorofpatent value.Followingthepioneeringcontributionsof Carpenteretal.(1981)andTrajtenberg(1990),variousstudieshave consistentlyestablishedthatforwardcitationsaresystematically correlatedwiththeeconomicvalueortheindustrialimportanceof patents(seeforexample,Albertetal.,1991;SampatandZiedonis, 2004).Theideabehindtheuseofforwardcitationsasindicator ofthevalueofapatentisrelativelystraightforward:ifapatent receivesmany citations,thismeansthatthetechnological solu-tionoutlinedinthepatentservesasabasis foralargenumber ofsubsequenttechnologicaldevelopments.Anotherrelated argu-mentisthatifapatentreceivesmanycitations,thismayalsomean thatithasbeenfrequentlyusedbypatentexaminerstoreducethe scopeofprotectionclaimedbysubsequentpatentsandthisagain pointstothesigniﬁcanceofthetechnologicalsolutioncontained intheoriginalpatent(VanZeebroeck,2011).Forallthesereasons, itseemsreasonabletopresumethatthetechnologicalvalueofa patentwillbecapturedbythenumberofforwardcitations.Ifthis isthecase,thenwe canexpectthat essentialpatentswill typi-callyhaveahighernumberofforwardcitationsthannon-essential patents.Onemightarguethatsomepatentsmayreceivecitations asaresultofbeingdeclaredessential.Weshallconsiderexplicitly thispossibilityinmoredetailinthenextsectionandweconclude that,giventheproceduresadoptedfortheconstructionofourdata set,theriskofendogeneityislimited.

SeveralrecentpapershaveindeedalreadyexploredHypothesis 1 in other contexts.Rysman and Simcoe (2008) conclude that patentsdeclaredasessentialtostandardsbodiesarecitedmuch morefrequentlythanasetofcontrolpatents.Layne-Farrar(2008) goesonestepfurtherbylookingspeciﬁcallyatpatentingtaking placeafterthestandardhasbeenset,andconcludesthatalso essen-tialpatentsinthis groupare morevaluable –i.e. receivemore citations–thanaveragepatents.

2.2. Firmstrategiesandessentialpatents

Firmsmaytrytohavesomeoftheirownpatentsincludedin thestandardsasessentialpatentsforreasonsthatmaygobeyond thespecific“technological”contributionthesepatentsmaketothe standard.Onreflection,theremaybeseveralincentives forthis behaviour.Essentialpatentsarenotonlyapotentialsourceof sig-nificantrevenuebutarealsovaluable‘exchangechips’thatopen thedoortoattractivecross-licensingagreements.Asdemonstrated withtheGSMcase,ownershipofessentialpatentscanbecrucial formarketentry(Bekkersetal.,2002).Although(F)RANDpolicies nowgenerallypreventpatentownersfromsystematicallyblocking othersfromthemarket,thosemarketplayerswhodonotownany essentialpatentsareusuallynotinaveryenviableposition.

Tounderstandbetterhowﬁrmscanemploystrategiesinorder togetessentialpatents,itisusefultolookinmoredetailatthe

typical standardisation processat formal standards bodies (see SchmidtandWerle,1998foramorein-depthdiscussionof deci-sionalprocessesinstandardisationcommittees,andFunk,2002, foraextensivetreatmentofcompetitionbetweenandwithin stan-dardsinthefieldofmobiletelephony).Thewayinwhichthework onanewstandardcommencesdiffersbetweenstandardsbodies, butoftenitistriggeredbyaproposalthatisbackedbyanumber ofmembers.Asetofrequirementsisdefinedinorderto estab-lishthemandateoftheparticipants(usuallyemployeesofmember firms)thataregoingtomakethestandard(oftencalled“Termsof Reference”).Subsequently,oneormoreTechnicalCommitteesare establishedinordertodevelopdraftspecificationsforthestandard. Memberscandecidetoparticipateinthesecommittees(by send-ingtheirrepresentativestothemeetings,orevenbyprovidingthe chairman)and,inthisway,cantakeanactivepartindetermining theexacttechnologicalcontentofthestandard.Althoughhigher bodiesinthestandardsbodies(suchasaGeneraloraTechnical Assembly,dependingonthestandardsbody)willstillneedtovote ontheacceptanceofastandard,therealtechnicalinclusionprocess – includingdecisionstoincorporatepatentedtechnologies– usu-allytakesplaceintheTechnicalCommittees.Inexceptionalcases, majordesigndecisionsmightbetakentoahigherlevel,butonce thesedecisionsaremade,thedetailedworkgoesbacktothe Tech-nicalCommittee.Inthesecommittees,discussionsandnegotiations aregoingonabouttheexactdefinitionofthestandard,and there-foretheexactsetoftechnologiesthestandardisdrawingon.Ina continuousprocess,participantsinthesemeetingsproposeallsorts ofsolutionsandtechnologiesinordertodraftastandardthatmeets thesetofrequirements.Iffirmssuggesttechnologieswhichthey knowarecoveredbypatents–inparticulartheirownpatents–they areobligedtodisclosethisinformation.Onthebasisofthepursuit ofconsensus(whichdoesnotmeanallneedtoagree,butis usu-allydefinedastheabsenceofpersistentresistance),thecommittee makesdecisionsonwhethertoincludesuggestedtechnologies.On somemajordecisions,standardsbodiesresorttoformalvoting pro-cedures(thatoftenrequiremajorityvotingor70%majorityvoting), butmany(smaller)technologydecisionsaremadeasapartof con-tinuousnegotiationprocessesinrelativelysmallgroups,wherethe participantsusuallyknowandrespecteach othervery welland quiteoftenseeeachotherasfriends.Thebenefitsthatfirmsderive fromtheirinclusioninthesocialnetworkcreatedbycooperation inthestandardhasbeenfoundtobeoneofthestrongest deter-minantsofthewillingnessoffirmstocontributetostandardsby participatinginTechnicalCommittees(BarandLeiponen,2008).In suchacontext,theremightbeatendencytoacceptothers bring-ingintheirpatentedtechnologies,aslongasyouareallowedto do thesamething. Inthis way,theinterestsof allparties –or atleast,ofalltheparticipants–arecateredfor.This‘technology inclusion’processoffersfirmsanumberofopportunitiestodrive patentsintoastandard.Boththespecific,strategicbehaviourof firmsinTechnicalCommitteesaswellastheuseofvotingpower withstrategicintendrequireacertaindegreeofinvolvementinthe standardisationprocess.Henceoursecondhypothesis:

Hypothesis2. Theactiveinvolvementoftheholderofapatent

inthestandards’creationprocessincreasesthelikelihoodofthat patentbeingclaimedessentialtoastandard.

Oncethestandardisestablished,ﬁrmsmayadoptadiversesetof furtherstrategiesforexploitingthesepatentsandobtainingaccess tootherparties’patents,wherenecessary.Whileourpaperdoesnot aimtoexplorethisingreatdepth,itisworthnotingthatthis pro-cessofteninvolvesthecreationoflargerportfoliosofbothessential andnon-essentialpatents(wherethevalueofsomeofthelatteris oftengreatlyoverlooked),cross-licensinginvolvingbundlesofboth essentialandnon-essentialpatents,andsometimesevenpatents forentirelydifferentproducts,agreementsonfuturepatents,etc.

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Firmstrategiesforpatentsinstandardsreceiveincreasinginterest intheacademiccommunity,includingcontributionsfromLemley (2002),Chiaoetal.(2007),andSimcoeetal.(2009).Theeffects of‘royaltystacking’arediscussedbyShapiro(2001)andLemley andShapiro(2006),andarecriticallycommentedonbyGeradin etal.(2008).Considerableattentionispaidtosomestrategiesat theextremeendofthespectrum,suchas‘holdup’,patentambush (see,forinstance,Farrelletal.,2007andSidak,2009),andpatent trolls(Reitzig et al.,2007).Others have alsoclaimedthat ﬁrms massively‘over-claim’patents,i.e.unjustlydeclarepatentstobe essential(GoodmanandMyers,2005).Whileitmaybeattractive todosoinordertoraiselicensingrevenues,atthesametime,ﬁrms areexpectedtorespecttheIPRpoliciesofstandardsbodiesinletter andinspiritandclaimtheirpatentstobeessentialonlywhenthey areactuallyso.Claimingnon-essentialpatentsmightleadto penal-tieswhensuchpatentsarechallengedincourtandmighteventually endangerthelicensingincomebyalllicensees.

2.3. Researchquestionandourapproach

Thetwoprecedingsectionsoutlinetwobasicdeterminantsthat maybesignificantwhenclaimingapatent“essential”fora stan-dard,namely:(1)theintrinsicvalueofthetechnologicalsolution containedinthepatent,(2)theinvolvementofthepatents’owner inthecreatingofthestandard,providingroomforstrategicconduct suchasinfluencingthestandards’contentintothe‘direction’ofthe patentsofthefirm.Thispaperaimstoprovideadetailed assess-mentoftheroleplayedbythesetwotypesofdeterminants.Inorder todoso,weanalyseasetofpatentsthathasbeendeclaredbytheir holdersasbeingessentialtotheW-CDMAstandardformobile tele-phony/telecommunications.Inordertoidentifythedeterminants affectingtheprobabilityofpatentsbeingclaimedessential,wehave constructedasetof(non-essential)controlpatentsthatmirrorsour essentialpatentsinboth technicalsubjectanddistributionover time.FollowingHegdeetal.(2007),whoappliedthisapproachto studythedeterminantsofthedecisionsoffirmswhethertoapply foracontinuationpatent,weuseabinomiallogitmodelfor assess-ingthedeterminantsofessentialitydeclarationdecisions.

3. Data:thecaseofW-CDMA

TheW-CDMAstandardisathird-generation(3G)standardfor mobile telecommunications. It was designed as a successor to thesuccessful,second-generation GSM standard. In additionto loweringthecostspercallincomparisonwithearliersystems, W-CDMAwasalsodesigned tosupportmultimediamobilephones thatcanaccommodateweb-basedapplicationsandoffer phone-basedaudioandvideofacilities.Thisrequirednotonlymuchhigher transmissionspeedsthaninearliergenerationsbutalsomuchmore ﬂexibility:differentusersmightrequiretotallydifferentspeeds, andthespeedsdemandedbyagivenusermaychangealotover time.Tomeettheserequirements,newradiotechnologieshadto bedeveloped.Furthermore,thetransitionfromsecondgeneration (2G)tothird-generation(3G)technologieswasmuchmorethana technologyupgrade,italsorequiredareconﬁgurationofthewhole valuenetwork(TilsonandLyytinen,2006),whichalsoaffectedthe standardisationprocess.

TheﬁrstresearchandstandardisationactivitiesforaEuropean third-generationstandard commenced in theearly1990s, even beforetheﬁrstcommercialGSMnetworkwaslaunched.2_Several

researchprogrammesfundedbytheEuropeanCommission stud-iedsuitableradiotechnologies,andoneofthese(inearlierstages

2 _This_section_does_provide_some_references,_but_for_a_more_extensive_overview

ofthedevelopmentandforadetailedlistofreferenceswerefertoBekkers(2001).

knownas‘CoDIT’and‘FRAMESFMA2)formedthebasisforwhat eventuallybecameW-CDMA.However,the3Gdevelopmentswere largelyignoredbyGSMoperators,whowerefocusingonincreasing subscriberstotheirexisting2Gsystems(Garrard,1998,pp.478). In1997,Japan,whosefirstandsecondgenerationstandardshad neverachievedanysuccessoutsideitsdomesticmarketandwhose manufacturershadonlyaminimalroleinsupplyingGSMproducts, attemptedtoleapfrogtheotherworldregionsbyswiftlyadoptinga 3GstandardandcontractingbothJapaneseandother manufactur-erstobuildtestsystems.Infact,theJapanesestandardsbodyARIB specifiedatechnologythatwaslargelybasedontheoutcomeofthe EuropeanFMA2researchprogramme.Japan’slargestoperatorNTT DoCoMonotonlyordereditsexperimentalnetworkwithJapanese companiessuchasNEC,Fujitsu,MatsushitaandMitsubishibutalso engagednon-Japanesefirms,includingEricsson,Nokia,Motorola, andLucent.Byinvolvingforeignsuppliers,ittriedtoincreaseits chancesofhavingtheW-CDMAtechnologyadoptedinotherworld regions.TheJapanesemovespromptedEuropetospeedupits pro-cess.Technicalproposalsbyparticipantswereclusteredintofive ‘conceptgroups’,ofwhichtheso-calledalphaproposalandthedelta proposalwereregardedasthetwomostpromisingones.Thefirst wasbasedlargelyidenticaltothetechnologyselectedbyJapanand supportedbyNokiaandEricsson,amongothers,whereasthe lat-terwasbackedbyAlcateland Siemens,who werenotinvolved intheJapaneseactivitiesatthatpointintime.Inearly1998,in whatturnedouttobethemostdifficultand controversial deci-sionprocessETSIeverexperienced,thealphaproposalcameout asthewinner.Soonafter,ETSIagreedwiththeJapanesestandards bodyARIBandseveralothertelecomstandardsbodiesfromother countriestoaligntheireffortstoensuretheir3Gstandardwould becompatible,andthe3GPPpartnershipprojectwasborn.The resultingstandardisknownasW-CDMA,butwithinEuropeisalso referredtoasUMTSand inJapanasFOMA(FreedomofMobile MultimediaAccess).Typically,W-CDMAisimplementedin combi-nationwithGSM,itssuccessorandthemostsuccessfulgeneration mobilestandard.W-CDMAisthemostsuccessful3Gstandard,but nottheonlyone.Onecompetingtechnologyiscalledcdma2000.It providesfullbackwardcompatibilitywiththesecond-generation cdmaOnestandard,andforthatreasonitismostlyimplemented incountriesthatapplieditspredecessor,particularlySouth-Korea andtheUnitedStates(Leeetal.,2009).Itsoverallsuccess,however, islimited.AthirdcompetitorisTimeDivisionSynchronousCode DivisionMultipleAccess(TD-SCDMA),developedinChinawiththe helpofsomeinternationalcompanieslikeSiemens.Thefuture suc-cessofthisstandardisunclear,andislikelytobelimitedtoChina itselfatbest.

Forvariousreasons,W-CDMAisaparticularlyattractivecase forassessingthedeterminantsofessentialpatentsincompatibility standards.Firstofall,itisastandardwithamajoreconomic rele-vance.TheworldwidemarketformobiletelephonyasofSeptember 2010amountedtojustabove5billionsubscribers,3_The_World_Bank

estimatesaglobaltelecommunicationsspendingofabout2.5%of globalGDPin1990(InsightResearchCorporation,2009).Although thesephonesdonotyetallsupportW-CDMA,theirshareinEurope isalreadyaround70%andgrowingquickly(IDATE,2007).Secondly, W-CDMAisanattractivecasebecauseinordertomeetthedesign requirements,itincludedanumberofradicaltechnological solu-tions,representinganewtechnologicaltrajectoryintheareaof telecommunications.Finally,andpossiblymostimportantly,there isalargeandcompletedatabasepubliclyavailableofﬁrms’ declara-tionsindicatingwhichoftheirownpatentstheyconsideressential toW-CDMA.Theavailabilityofsuchdataisarelativelyrare

occur-3_Source:_{http://www.4gamericas.org}_,_at_{‘statistics’,} _consulted_on_January_24,

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renceinthisﬁeld.Forallthesereasons,theW-CDMAcaseseems analmostidealtestbedforassessingthedeterminantsofessential patents.

3.1. Datasources

In thisstudy weusethelatestavailable datasetcontaining allpatentsdeclaredbytheirownersasessentialtotheW-CDMA standard.Adatabaseofallthesedeclarationsismadeavailable on-linebyETSI4_;_we_retrieved_the_relevant_declaration_in_March_2008.

ThesedeclarationsaresenttoETSIbyitsindividualmembers.Asa matterofprinciple,ETSIisnotresponsibleforjudgingtheseclaims. Inotherwords,tobeincludedinthedatabasethereisno assess-mentofthe“essential”natureofthecontentofthesepatentsfor W-CDMAtechnology. Thedatabasecontainsinformation onthe patentowner,patenttitle,patentandapplicationnumber,the stan-dardandpartofthestandardthepatentrelatedto,andthecountry ofregistration.However,thedataandinparticulartheconsistency ofitsformat,leavemuchtobedesired(ETSIhascurrentlyembarked ona program toimprove that).Since ETSI doesnot check this databaseforerrorsorduplicates,anextensivecleaningand sort-ingprocedureisnecessarytopreparethedatabaseforthisstudy. ThedatabaseweusedwasupdatedbyETSIinMarch2008,andit contains18,738patents.7090patentsareessentialtostandards thatarenotrelevantforourresearch,forexampleGSM.Our selec-tionofessentialpatentsisrestrictedtothosepatentsbelongingto projectsrelatedtoW-CDMA.Withdrawnandinactivepatents(88 intotal)havebeendeletedfromtheselection.Wecontinuedwith allpatentsforwhichwecouldidentifyaUSpatentnumber, assum-ingthatﬁrmswouldatleastseektohaveapatentinthisimportant market.

TheUSpatentapplicationnumbersfromtheETSIdatabasewere matchedwiththe‘NBER PatentCitation Data File’compiled by BrownieHallandherco-workers(Halletal.,2001).Theoriginal NBER(NationalBureauofEconomicResearch)datasetcomprises detailed information on almost 3 million U.S. patents granted betweenJanuary1963andDecember1999andallcitationsmade tothesepatentsbetween1975and1999(over16million).Inthis studyweuseanupdatedversionoftheNBERdataﬁleconstructed by Bart Verspagen (see Fontana et al., 2009 for another study employingthis updatedversion).Thisupdatedversion contains patentsgranteduptotheyear2003,includingcitationspairs.Inthis wayitwaspossibletoretrievethepatentinformationincludedin theNBERdatabase(inventor,applicant,title,primaryUSPTOclass, citations,etc.)concerning752USpatentsthathavebeendeclared essentialfortheW-CDMAstandard.TheETSIdatasetalsocontains patentsregisteredindifferentcountriesandpatentofﬁces,butin thisstudyweonlyusetheUSPTOpatents.Thereasonforthischoice isthatUSpatentcitationsareprobablymorerepresentativeofthe valueofthepatent,becauseintheUSsystem,anapplicanthasa legalobligationtociteallrelevantpatentsandpriorknowledge (‘dutyofcandor’).Ifapatentapplicantfailstociterelevantpatents, itriskstobesued.InEurope,patentcitationismoreorless volun-tary;anapplicantcannotbepunishedfornotcitingrelevantpatents (CriscuoloandVerspagen,2008).Asmentionedabove,anumber ofstudiessuchasCarpenteretal.(1981),Trajtenberg(1990)and Albertetal.(1991)haveestablishedthatforwardcitationsmaybe regardedasavalidproxyforthevalueofpatentsintheUS.Inorder tocompareessentialW-CDMApatentswithnon-essentialpatents, weconstructedacontrolsetofcomparablepatentsthatarenot claimedtobeessentialtoW-CDMA.Thisisasampledsetwhere

4_An _on-line _version _of _the _ETSI _IPR _database _can _be _found _at

http://webapp.etsi.org/ipr/.

patentsarerandomlyselectedfromadeﬁnedpopulation.5_These

patentsarealsomatchedwiththeNBERUSPatentCitationData File.Inordertomakethenon-essentialpatentscomparabletothe essentialpatentswehaveestablishedanumberofrequirements thattherandomselectionqueriesprocedureshadtosatisfy.Firstly, thepatentsinthecontroldatasetshouldobviouslynotoccurin thelistofessentialW-CDMApatents,sincewedonotwantany essentialpatentsinthecontroldataset.6 _Secondly,_the

distribu-tionof patentsoverpatent classesin thecontrolclassmust be similartothedistributionoftheoriginalsetofessentialpatents (here,weonlyincludedthoseclasseswithashareof3%orhigher). ThisensuresthatessentialW-CDMApatentsarecomparedwith acontrolsetofnon-essentialpatentscoveringthesametechnical fields.Finally,theessentialandnon-essentialpatentsetmustcover thesametime-periodsintermsofapplicationyear.Sincetheoldest essentialpatentswereappliedforin1979,thepatentsinthe con-troldatasetwereretrievedfromtheperiod1979–2003.Following theseprocedures,wehaveconstructeda controlgroupofabout 10,000non-essentialtelecompatents.Table1shows thepatent classeswithshareshigherthan3%intheessentialpatentsgroup andthecorrespondingsharesintherandomlyextractedcontrol group ofnon-essential patents.Our variable of interest is con-structedasadummydistinguishingessentialfromnon-essential patents(0=non-essential,1=essential).Theforwardcitations vari-ableplaysakeyroleinthisstudy,asitrepresentsourindicatorof thetechnologicalimportanceofeachpatent(Hegdeetal.,2007).As mentionedintheprevioussection,wefollowanestablishedline ofresearchrelyingonanumberofstudiesthathaveestablished theexistenceofapositivecorrelationbetweenforwardcitations andtechnologicalimportance.Withtechnologicalimportancewe meanthevalue(or‘merit’)ofthetechnologicalsolutiondescribed inthepatent forthetechnologicalfield inquestion.We should notethatthenumberofforwardcitationsisnotagoodmeasure oftechnologicalimportancewhencomparingpatentsofdifferent ages.Clearly,olderpatentshadmore opportunitiesofreceiving citationsthannewerpatents,sotheywilltypicallyhaveahigher numberofforwardcitations.Thisproblemisaggravatedby possi-blechangesinpatentandcitationpracticesovertime,whichmay haverepercussionsonthenumberofforwardcitations(Halletal., 2001,pp.434–437).Inordertodealwiththisissue,wecarriedout a“fixed-effect”adjustmentofthenumberofforwardcitationsby dividingthenumberofforwardcitationsofeachindividualpatent withtheaveragenumberofforwardcitationsofpatentsofthesame applicationyear.Inthisway,wehaveconstructedanindicatorof technologicalimportancethatcanbeusedforcomparingpatents ofdifferentages(Halletal.,2001,pp.437–441).

Sinceweusereceivedcitationsasourindicatoroftheintrinsic technologicalsigniﬁcanceofthepatent,itisimportanttoconsider towhat extenta patent couldactually receive(more) citations

5_The_sample_of_10,000_control_patents_is_drawn_from_the_population_of_all_patents

inthesixpatentclassesthatcontain90%ofallpatentsclaimedessentialtothe

W-CDMAstandard(seeTable1foraspeciﬁcationoftheseclasses).Fortheselectionwe

onlyconsideredthosepatentsthatfallinthesametimeframeasthatofour

essen-tialpatents(1979–2003).Thepatentswererandomlyselectedusingtherandom

selectionfunctioninadatabaseapplication(weusedMicrosoftAccessforthis).In

ordertopreventtheextractionofduplicatepatents,theessentialW-CDMApatents

wereremovedfromthepopulationbeforetherandomsamplingprocedure.

6_We_should_note_that_as_information_on_essential_patents_is_scarce,_incomplete,

andresource-consumingtocollect,wecannotpreventthatpatentsessentialfor

otherstandardsthanW-CDMAareincludedinthecontroldataset.Thisproblem,

however,shouldnotintroduceamajorbiasinourresultsastherandomquery

pro-cedurehasbeenappliedtoaverylargepatentpopulation.Areasonableupperbound

estimateofessentialpatentsformobiletelecompatentsnotclaimedforW-CDMA

isapproximately2000patents.Thus,wehaveanaverageupperboundprobability

ofabout2%(2000outof88,507)thatapatentinourcontrolsetwouldhavebeen

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Table1

ComparisonofthedistributionofUSPTOtechnicalclassesacrossW-CDMAessentialpatentsandacrossthesampledcontrolcroup.

Primaryclassno. Primaryclasstitle Patentsinprimaryclass Claimedessentialpatentsin dataset(%)

Non-essentialpatentsin sampledcontrolgroup(%) 370 Multiplexcommunication 20,831 225(30%) 3,194(33%)

455 Telecommunications 18,340 193(26%) 2,716(29%)

375 Pulseordigital communications

16,863 144(19%) 2,045(21%)

704 Dataprocessing:speechsignal processing,linguistics, languagetranslation,andaudio compression/decompression

6,197 48(7%) 679(7%)

714 Errordetection/correctionand Faultdetection/recovery

13,842 33(4%) 469(5%)

342 Communications:directive radiowavesystemsand devices(e.g.,radar,radio navigation)

12,434 32(4%) 459(5%)

Other n/a 77(10%) 0(0%)

88,507 752(100%) 9,562(100%)

becauseofthefactthatitisclaimedtobeessential.Overall,we

believethisisnotamajorconcerninourcase.Theconcernthata

patentmayreceivecitationsjustbecauseitwasclaimedas

essen-tial(independentlyfromitsintrinsicvalue)isimplicitlybasedon

asetofveryspeciﬁcassumptions:(i)theholderofthelater

(cit-ing)patentisawareoftheexistenceofthefocalpatent,(ii)heis

awarethatthefocal patentis essentialorlikely tobeessential

and(ii)believesit isinitsowninteresttocitethefocalpatent.

Concerning(i),weperformourcalculationsbasedonapplication

year.Ittypicallytakesayearormorebeforeapatentapplication

becomespublicandbeforeapatentisgranted(ifatall).Alsonote

thattheUSPTOsystemonlyallowscitationstograntedpatents.

Then,iftheapplicantofthatlaterpatentdecidestocitethefocal

patent,itwilltakesometimebeforethislater(citing)isgranted

andsomemoretimebeforeitwillappearinthedatabasewehave

usedtocalculatethecitationsreceived.Thisdelaylimitsthe

afore-mentionedrisksforthepatentsappliedfor inthelateryears of

ourdatabase.(Notethatweconsiderallincomingcitationsfrom

patentsuptotheyear2003).Concerning (ii),it isimportantto

understandatwhatpointintimepartiescouldbeawarethata

cer-tainpatentwouldeventuallybeclaimedessentialforthestandard.

ForW-CDMA,therewasnowaytotellwhichbasictechnologies

wouldbecomerelevantornotuntilthelandmarkbasic

technol-ogydecisioninearly1998.Beforethatmoment,totallydifferent

designswereintherace:notonlyCDMA-basedbutalsobasedon

ODFMandcompletelydifferentbasictechnologies.(Infact,abouta

decadelater,ODFMwouldbeselectedasthebasisforW-CDMAits

successor,dubbedLTE–butthatgoesbeyondourstory.)Although

ﬁrmsmayhavespeculatedaboutsome‘basictechnology’patents

tobecomeessential,theycouldnothaveknownforsureuntilthe

ofﬁcialstandardwasdecideduponandpublished(forW-CDMA,

theﬁrstreleasecalled‘Release-99waspublishedinMarch2000).

Furthermore,evenwhenbothpatentandstandardarepublished,it

canbesurprisinglyhardtoassesswhetheracertainpatentisindeed

essential—thisrequirestheproductionofa‘claimchart’whereeach

claimofthepatentismeticulouslycomparedwithallthe

speci-ﬁcationsofthestandard,sometimes10,000ofpages.Onlywhen

aﬁrmdeclares apatenttobeessential,andthis claimisadded

tothepublicdatabase,otherﬁrmshavegoodinformationabout

claimedessentiality.Inthecontextofthisstudy,itisimportantto

notethatthereisaconsiderabledelayfordeclaringpatents.Inour

dataset,theaveragetimebetweenthepatentapplicationandthe

momenttheessentialityclaimwassenttoETSIissevenyears.For

‘old’patentsthisisobvious:apatentﬁledbackin1980cannotbe

declaredbeingessentialbeforethedeﬁnitivestandardisofﬁcially

publishedin1999,sothedelaywillbeatleast19years.However,

thedatarevealsthatthereisalsoaconsiderabledelayformore

recentpatents(Table2).Forinstance,patentsthatwereappliedfor

in1997(andpresumablyaregrantedin1998or1999),stillhavean averagetimelagofsevenyearsbeforedeclaration(i.e.theclaims arrivedin2004,onaverage).Weconcludethatinourparticular dataset,andthetimeperiodforwhichweconsideredincoming citations,thereisonlyaverylowchancethatknowledgeofpatent essentialitymayhaveaffectedthedecisiontociteessentialpatents. Concerning(iii),wewouldliketoemphasisethatcompanies needtomakecarefulconsiderationsbeforecitinganexistingpatent inapatentapplicationattheUSPatentOfﬁce,havingtomeetthe ‘dutyofcandor’obligationinUSpatentlaw(Section1.56,Chapter 37oftheCodeofFederalRegulations).Byincludingacitation,an applicantconﬁrmstheexistenceofpriorartandtherebylimitsthe scope–andvalue–ofitsownpatent.(Ontheotherhand,failingto citearelevantexistingpatentincreasestheriskofapatentbeing invalidatedatalaterdate.)Patentexaminersmayalsoaddcitations thattheybelievetobemissingfromtheapplication.Thus,citations havesubstantiallegalconsequencesandarenotaddedintheway thatcitationsareaddedtoacademicpapers,forinstance.

Table2

AveragedelaybetweenpatentapplicationanddeclarationatETSI.

Applicationyear Patents Averagedelay(years) Applicationyear Patents Averagedelay(years)

1981 1 21.00 1992 27 9.33 1982 1 21.00 1993 44 8.77 1983 2 20.50 1994 72 7.86 1984 1 18.00 1995 69 7.54 1985 3 18.00 1996 80 7.06 1986 7 16.71 1997 92 6.35 1987 9 15.56 1998 104 5.38 1988 9 15.33 1999 91 4.85 1989 10 12.50 2000 41 4.27 1990 21 11.33 2001 22 3.77 1991 30 9.30 2002 31 2.19

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Table3

Descriptivestatistics.

Variables Observations Mean Std.dev. Min Max

Essential 10,311 0.072 0.260 0.000 1.000

Forwardcitations 10,311 9.444 20.153 0.000 617.000

Adjustedforwardcitations 10,311 1.003 2.137 0.000 70.111

Totalpatents 10,311 14989.500 15308.510 1.000 53595.000

Technologicalconcentration(Herﬁndahl) 10,311 0.120 0.188 0.011 1.000

Workitemssupported 10,311 7.481 11.190 0.000 34.000

Votingweight 10,311 12.413 15.876 0.000 45.000

R&Dexpenditures(×US$1000) 7,529 3758.062 6764.148 0.650 25471.930 SalesTurnover(×US$1000) 7,692 36271.400 49172.590 0.000 171607.400

Employees(×1000) 5,824 123.226 111.314 0.000 468.200

Continuingwithourdataset,wehavealsomatchedthe

appli-cantnamesofourpatentdatasetwiththenamesofcompaniesin

theCompustatdatabase.7 _Our_original_patent_data_set_contained

2718differentcompanynamesasapplicants.Bymeansof exten-sivemanualresearchonanumberofinternetsourcessuchasthe UnitedStatesSecuritiesandExchangeCommissionwebsiteand onCompustat,weretrievedinformationonownershipstructure andassigned patentsappliedby“daughters”totheirrespective “mother”companies.Inthiswaywereducedourapplicantsetto 1850differentcompanies.Concerning mergersand acquisitions, wehavetaken1999asreferencepoint:companieswhichmerged beforethatyearwereconsideredonecompany,companieswhich mergedafterthatyearwereaddedastwodifferentcompaniesin ourdataset.Thisisnotlikelytoimpactgreatlyonourresults.From Compustatwethenretrieveddataontheannualaveragenumberof employees,theaveragesalesturnoverandtheaverageR&D expen-dituresovertheperiod1997–2001forthecompaniesincludedin ourapplicantset.Asmuchaspossible,alltheadditionaldatawe collectedreferstothe1999/2000timeframe,theperiodinwhich thestandardwasﬁnalised.

Inordertocapturethestrategicinvolvementofcompaniesin thestandardisation,wehaveconstructedtwoadditionalvariables. Thefirstvariableweapplyisaproxyfortheinvolvementoffirms inactualdraftingofthecontentofaspecificstandard.In3GPP,new features,orworkitems,areproposed,accepted,developed,and cer-tifiedifatleastfourfirmssupportthiswork.Onceaworkitemis underway,thesupportingcompaniesareexpectedto“contribute toandprogressthenewworkitemthroughoutthedraftingphases” (BarandLeiponen,2008).Assuch,thenumberofworkitemswithin 3GPPsupportedbyagivenfirm,asregisteredby3GPP,reflectsthe actualdegreeof participationof companiesin thedevelopment ofnewwork.ThisdatahasbeencollectedbyBarand Leiponen (2008),who alsodescribetheunderlying3GPPprocedureswith projectcoordinationgroups,technicalspecificationgroups, work-inggroups,andworkitems.Oftheover300firmsthatwere3GPP membersin2000,only58supportedoneormoreworkitems. How-ever,weshouldnotethatwhilethevotingweightreflectsthemore “institutional”roleofcompaniesinthestandardisationprocess,the numberofworkitemssupportedprobablyreflectsamore“active” degreeofparticipationintheprocesspossiblyalsobecauseof gen-uinetechnologicalcapabilitiesof thedifferentcompaniesinthe areasinquestion.Thesecondvariablemeasuringinvolvementis thevotingweightinthestandardisationprocess.Votingweights areassignedtocompaniesinrelationtothecontributionfeesto ETSI.Inturn,thesearebasedoncompanies’declarationsoftheir telecommunication-relatedrevenues.Votingweightsareassigned inunitsandcanrangefrom1to45.AppendixAcontainsatablewith contributingfeesandvotingweightsinETSI.Tosummarise,atthe endofourdataconstructionefforts,wehaveadatasetcontaining

7_For_details_on_the_contents_of_this_see_{http://www.compustat.com}_.

10,314USPTOpatents,including752patentsthatareclaimedtobe essentialforW-CDMA.Foreachofthesepatentswehaveproxies forvalue(capturedbytheadjustednumberofforwardcitations) andforthestrategicinvolvementofthepatentownerinthe stan-dardisationprocessascapturedbyvotingweightswithinETSIor bythenumberofworkitemssupported.Concerningtheapplicants, wehave1850ﬁrmsinourdataset,whiletheessentialpatentsare ownedby50ﬁrms.

3.2. Descriptivestatistics

Table3showsthedescriptivestatisticsforthemostimportant variablesofourdataset.Essentialisthebinaryvariablethat distin-guishesessentialfromnon-essentialpatents.Themeanisobviously relativelylow,becausethedatasetcontainsroughlytentimesas manynon-essentialpatentsasessentialpatents.Firmsthatarenot anETSImemberhavenovotingweightwithinETSIwhereasthe maximum votingweight is45. The maximumnumber of3GPP workitemssupportedbyafirmis34(Ericsson),whilethe min-imumiszero.Ericssonisalsothecompanywiththehighestnet income.Mostpatentshavezeroforwardcitations,whileUSPTO patent5,103,459hasthehighestnumberofforwardcitations(617). ThisessentialpatentisownedbyQualcommandthetitleis“System andMethodforGeneratingSignalWaveformsinaCDMACellular TelephoneSystem”.Aperusalofthepatentrevealsthatthisislikely tobethekeytechnologyforCDMA.Qualcommisalsothefirmwith themostessentialpatents(208).Thehighestvalueforthe fixed-effectadjustmentofforwardcitationsofanindividualpatentby divisionwiththeyearlyaverageis70.1111(variableadjusted for-wardcitations).Wehaveusedtwovariablesforcharacterisingthe patentportfolioofthepatentowners.Thefirstisthetotalnumber ofUSpatentsowned,whereasthesecondistheHerfindahl concen-trationindex,indicatingthedegreeofconcentrationofthefirm’s patentportfolioovertheUSprimarypatentclasses.Finallywehave variablesmeasuringthesizeofthecompanies(employeesandsales turnover)andtheR&Dexpenditures.

Fig.1showsthe12firmswiththehighestnumberofclaimed essentialW-CDMApatents.TheUS-basedfirmQualcommowns 208essential W-CDMA patents, which is more than 25% of all patentsdeclaredtothestandard.Qualcommistheoriginal devel-oper of Code Division Multiple Access (CDMA) technology for mobiletelecommunications networks.Theimplementationof a W-CDMAairinterfaceintheW-CDMAstandardaccountsfor Qual-comm’shighnumberofessentialpatents(BekkersandWest,2009). TheSwedishcompanyEricssonisinsecondplacewith155patents. Itscorebusinessmovedfromtheproductionofmobilephonesin the1990stothedevelopmentandproductionofthecellular infras-tructure.Thethirdplace(94patents)isheldbyInterdigital,another US-basedfirm.

TherearetwoaspectsthatsetthecompaniesQualcommand Interdigitalapartfromtheotherlargeownersofessentialpatents. InthecaseofQualcomm,technologydevelopmentandlicensingis

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Fig.1. EssentialW-CDMApatentowners,12largestclaimants.

Table4

Propensitytoclaimpatentsasessential,12largestﬁrms.

Firm USPTOpatentsclaimedtobeessential(ourdatabase) Totalpatentstockinrelevantsubclasses Ratio

Qualcomm 208 795 26.16% Ericsson 155 3033 5.11% Interdigital 94 219 42.92% Nokia 48 1520 3.16% Motorola 44 4254 1.03% Philips 22 1791 1.23% NEC 22 3567 0.62% Matsushita 18 1382 1.30% Siemens 18 1466 1.23% Samsung 16 1023 1.56% Toshiba 14 1131 1.24% Nortelnetworks 13 1364 0.95%

akeyelementinitsbusinessmodel,althoughtheﬁrmalsoholdsa

strongpositioninthemarketforcomponentsformobilephones.8

Interdigitalisanon-producingentity(NPE)or‘technology-only’ firmand hasa businessmodel thatisalmostentirelybasedon licensingitspatentedtechnologiestootherfirmsinthetelecom industry.Wecallthesetwofirms‘technologyspecialists’,to distin-guishthemfromfirmsthatareverticallyintegratedandprimarily aimatcompetingintheproductmarketformobiletelephonesand mobilenetworkinfrastructure.

Table4examinesthestructureofthetelecompatent portfo-lioofthecompaniesowningthemajorityof W-CDMAessential patents.Itshowsthenumberofessentialpatentsclaimedbythe twelvelargestclaimants,aswellasthetotalnumberofpatentsof theseﬁrmsinthetechnologicalclassesrelevantfortheW-CDMA standard(Table1).Athirdcolumnshowstheratiobetweenthese twonumbers.Thetablerevealsthat“technologyspecialists”such asQualcommandInterdigitalownpatentportfolioscharacterised byarelativelylargeshareofclaimedessentialW-CDMApatents whereasthe(oftenlarger)verticallyintegratedﬁrmshavepatent portfolioswithsmallershares ofclaimed essentialpatents (the companywiththelargestshareisEricssonwithashareof5.11%). Overall,theimpression onegets fromTable 4,is that essential patentsplayakeyroleinthetechnologystrategiesof“technology specialists”.Thisisunderstandableifonerealisesthatpatents– and theassociatedroyaltyincomes–arekeytothebusinessmodelsof

8 _Qualcomm_has_a_38%_revenue_share_in_the_global_market_for_so-called_baseband

chipsets,thecorecomponentofamobilephoneinwhichthemobile

telecommu-nicationsfunctionalityisintegrated.Source:TheFreeLibrary(March15,2010):

“MediaTekunseatsTIasNo.2cellularbasebandchipvendor”.

theseﬁrms,whereasforintegratedﬁrms,thefreedomtooperate ontheproductmarketisoftenmoreimportant.

Theglobalmarketleaderin producing cellphones,Nokia, is infourthplacewith48 essentialpatents.Fig.2showsthe tim-ingofpatent applicationsfor theﬁveﬁrmsowningthehighest numberofessentialW-CDMApatents.Qualcomm’sseriesshows anearlypeak,whichmayberelatedtothedevelopmentperiodof CDMA,whichisthepredecessoroftheunderlyingairinterfacefor W-CDMA.

Table5comparesthetechnologicalimportanceofafirm’s port-folioofessentialpatentswiththatofnon-essentialpatents.The technological importance of a firm’s patent portfolio hasbeen computedastheaverageofthe“fixed-effect”adjustednumberof forwardcitationsofthepatentsbelongingtothefirm’sportfolio. Table4considersfourdifferentperiodsandcontainsthe14firms withthemostessential W-CDMApatents.Theexpectation that thetechnologicalimportanceofafirm’sessentialpatent portfo-lioishigherthanitsnon-essentialpatentportfolioisconfirmedby thesefigures.Mostoftheaverageessentialpatentportfolioshave anaveragecitationratiohigherthan1,whilethisvalueislower than1formostofthenon-essentialpatentportfolios.Siemensis theonlyfirmwherethetechnologicalimportanceofitsessential patentsislowerthan1(whichmeansthatitsessentialpatentshave fewerforwardcitationsthantheyearlyaverage).Siemens’ essen-tialW-CDMApatentshaveanaveragecitationratioof0.84.This mightsuggestthatSiemenshasusedasuspiciouspatenting strat-egyforitsW-CDMApatents,claimingpatentsof belowaverage valueasessential.However,weshouldnote,asTable4indicates, thatSiemens’non-essential patentsarealsooflessimportance. AnotherexplanationforSiemens’lowimportanceofessential W-CDMApatentsmightbethatSiemenswasoneofthefirmsthat

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0 20 40 60 80 100 120 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

USPTO Applicaon Year

Essenal Patents All firms Nokia Ericsson Interdigital Qualcomm

Fig.2.Timingofessentialpatentsbytelecommarketleaders.

Table5

Averagetechnologicalimportanceofﬁrms’patentportfolio(USPTOpatents).

Companyname Patentsclaimedasessential Patentsnotclaimedasessential(sampledcontrolgroup) 1986–1990 1991–1995 1996–2001 All 1986–1990 1991–1995 1996–2001 All Qualcomm 10.27 3.01 2.98 3.21 – 1.36 1.38 1.32 Nokia 3.14 1.15 1.28 1.21 1.74 1.00 1.05 1.05 Ericsson 1.64 1.93 2.28 2.14 1.45 1.28 1.00 1.05 Interdigital 4.44 1.77 1.35 1.46 – 0.79 0.46 0.59 Siemens – 0.67 0.84 0.84 0.33 0.52 0.60 0.56 Motorola 4.25 1.62 1.29 2.25 1.10 0.79 0.95 0.94 Samsung – 0.79 1.80 1.74 0.27 0.83 0.56 0.57 Philips 3.96 0.41 0.51 1.62 0.71 0.49 0.54 0.55 NEC 3.90 0.43 2.76 2.31 0.66 0.59 0.43 0.56 Alcatel – 1.18 1.14 1.15 0.67 0.62 0.69 0.66 NTT – – – – 1.09 0.96 1.30 1.11 Nortel – 0.76 3.10 2.71 1.09 1.15 1.12 1.12 Matsushita – 1.36 0.98 1.09 0.77 0.67 0.63 0.65 Toshiba 0.89 0.56 0.00 0.71 0.54 0.77 0.96 0.80

focusedonthedevelopmentofTD-SCDMA.Siemens,togetherwith

Alcatel,triedtoconvinceETSItochooseTD-SCDMAasthe

under-lyingairinterfacefortheW-CDMAstandard.SoETSI’schoicefor

thecompetingW-CDMAtechnologyin1999mightbeareasonfor

Siemens’lowimportanceofessentialW-CDMApatents.

Table 6 reports a preliminary assessment of the differences between the samples of essential and non-essential patents. Sinceourvariablesofinterest(inparticulartheadjustedforward citations)areskewedandnotnormallydistributed,weusea non-parametricMann–Whitney test. Table5 comparestheadjusted numberofforwardcitations,ourproxyforthetechnological impor-tanceofthepatentandworkitemssupportedandvotingweight withinETSI,ourproxiesfortheinfluenceofaspecificfirminthe standardisation processfor essential and non-essential patents. Interestinglyenough,theMann–WhitneytestsinTable5indicate thatessentialpatentsarecharacterisedbyasignificantlyhigher numberofadjustedforwardcitations,andatthesametime,are alsoownedbycompanieswithhighervotingweightsor support-ingmoreworkitemswithinETSI.Inotherwords,thispreliminary evidencesuggeststhatboththeintrinsictechnologicalvalueofthe patentandstrategicconsiderationsbycompaniesdoplayaroleas determinantsofessentialpatents.

4. Multivariateanalysis

Inthissectionweprobefurtherintothepossibledeterminants ofessentialpatentsestimatinganumberoflogitregression

mod-els.Ourdependentvariableisthedummyessentialwhichequals ‘1ifthepatentisclaimedessentialandequals‘0ifthepatentis notclaimedasbeingessential.Weestimatetwosetsofregression models.Inthefirstsetthevariablecapturingtheroleofstrategic factorsasdeterminantoftheprobabilityofapatentbeingclaimed essentialisthenumberofworkitemssupported.Inthesecondset weusethevotingweightinstead.Inbothcasesthevariable assess-ingtheroleoftheintrinsicvalueofthepatentismeasuredusing thevariable“adjustedforwardcitations”.Sinceweareinterestedin comparingtherelativeeffectofpatentvaluewiththatofstrategic factors,weestimatestandardisedcoefficientswhichareobtained bynormalisingalltheco-variatessothattheyhaveameanofzero andstandarddeviationofone(Pampel,2000).Itisimportantto notethatinallspecifications,weintroducetwodummyvariables forcontrollingforpatentsownedbyQualcommandInterdigital that,aswehaveseenintheprevioussection,arethetwo “technol-ogyspecialists”companiesowningpatentportfolioscharacterised byrelativelylargesharesofW-CDMAessentialpatents.Appendix Bpresentsthecorrelationsbetweenourvariables.

Table7presentstheresultsofthefirstsetofregressionmodels. Inthisset,adjustedforwardcitationsandworkitemssupported arethekeyvariablesofinterest.Theotherco-variatesareincluded ascontrolvariables.Thecoefficientsforbothadjustedforward cita-tionsandworkitemssupportedarepositiveandsignificantat1% level in allregression models.Althoughtheresultsshow some differencesintheestimatedcoefficientsoftheseexplanatory vari-ables,overalltheycoefficientsremainrelativelystableacrossthe

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Table6

DescriptivestatisticsforthesampleofclaimedessentialW-CDMApatentsandthepatentsnotclaimedasessential(aspresentinthesampledcontrolgroup).Note:Inall

threecasestheMann–Whitneytestrejectsthehypothesisofequalpopulations(p<1%).

Variable Sample/group Observations Mean Median Std.dev. Min Max Adjustedforwardcitations Claimedessential 691 2.242 1.394 3.098 0 35.055

Notclaimedessential 8859 0.907 0.464 1.885 0 35.055 Workitemssupported Claimedessential 691 16.214 15.000 13.211 0 34.000 Notclaimedessential 8859 7.279 0.000 10.975 0 34.000 Votingweight Claimedessential 691 27.852 30.000 16.095 0 45.000 Notclaimedessential 8859 12.046 6.000 15.485 0 45.000

differentspeciﬁcations.9_Furthermore,_our_results_show_that_in_all

regressionmodelsthecoefficientofthevariableworkitems sup-portedishigherthanthecoefficientofadjustedforwardcitations. Thisfindingindicatesthattheinfluenceofcompaniesinthe stan-dardsbodyexertsagreaterimpactthanthetechnologicalvalue ofthepatentontheprobability ofthepatentbeingclaimed as essential.

Itisworthdiscussingbrieflytheestimatedcoefficientsofthe controlvariables.Asexpectedthesignofthetwodummy vari-ablescontrollingforQualcommandInterdigitalarepositiveand significant.ThecoefficientoftheHerfindahlIndex(whichis com-putedoverthetechnologicalclassesofthepatentowner)isused hereasaproxyforthetechnologicaldiversityoffirmsandhasa significantandpositiveinfluenceonessential.Thisindicatesthat essential patentsare much more often owned by firms whose patentportfolioisconcentratedononetechnologyfield,compared tonon-essentialpatents.ThedummyforAsiaandEuropeare posi-tiveandsignificantinallregressionsindicatingthatpatentsowned byAsian and Europeancompanieshave a higherprobability of beingclaimedasessentialforW-CDMA.Note,however,thatthis resultislikelytobeaffectedbythetwodummiesthatcontrolfor thetechnologyspecialistscompanies.

ThecoefﬁcientofthevariableforR&Dexpendituresis signiﬁ-cantandpositiveinthemodelofcolumn2.10_Note_instead_that_the

twovariablesthatweusetocontrolforthesizeofthecompanies employeesandsalesturnoveraresigniﬁcantwithanegativesign. Againthisresultmaybeprobablyinterpretedasanindicationthat thepatentsownedbycompanieswithspecialisedpatentportfolios intelecom,havehigherprobabilitytobeclaimedasessentialsthan ratherthanpatentsownedbylargeanddiversiﬁedcompanies.

Table 8 presents six regression models where the two key explanatoryvariablesofinterestareadjustedforwardcitationsand votingweight.Weusevotingweightasaproxyofdimensionof involvementinthestandardisationprocessand weare particu-larlyinterestedinthissetofregression,becauseasnotedabove, whereasthevariable workitemssupportedmaybethoughtas reflectingalsosometechnologicalcompetences,thevariablevoting weightprobablycapturesmoreadequatelytheeffectofthe for-malisedinstitutionalpowerofcompaniesinthestandardisation process.Thecoefficientsofadjustedforwardcitationsarefullyin linewiththoseestimatedinthemodelsinTable7.Votingweight alsohasasignificantandpositiveinfluenceonessential.Again,in allthemodelsestimated,thesizeofthestandardisedcoefficientis higherthanadjustedforwardcitationsandthisfindingconfirmsthe strongerroleoftheinvolvementwithstandardsbodiesasa

deter-9 _We_obtain_the_same_results_concerning_the_different_size_of_the_two_{coefﬁcients}

alsoestimatingasimilarsetofmodelsthatdonotcontrolforthetwo“technology

specialists”companies.

10 _The_ﬁrst_two_columns_contain_control_variables_for_ﬁrm_size_and_R&D

expendi-turesextractedfromtheCompustatdatabase.Asthisdatacouldnotberetrievedfor

allﬁrmsinoursample,thesemodelsareestimatedonsomewhatlowernumbersof

observations.

minantoftheprobabilityofapatentbeingclaimedessential.11_Note

alsothatthecoefficientofthevariablevotingweightisingeneral higherthanthecorrespondingcoefficientforworkitemssupported inTable7.Theresultsfortheothercontrolvariablesarefully con-sistentwiththoseofTable7.Alsointhissetofmodels,asmallerand moreconcentratedpatentportfoliohasasignificantandpositive effect.Theregionaldummiesagainrevealahigherprobabilityof patentsownedbyEuropeanandAsiancompaniesofbeingclaimed essential.Finally,alsointhissetmodels,thevariableforR&D expen-dituresaffectspositivelytheprobabilitythatapatentisclaimedas essential,whereasthevariablescontrollingforsize(employment andsalesturnover)haveanegativeimpact.

Allinall,inbothofourmodels,Hypothesis1andHypothesis 2areconﬁrmed,andweshowthatthesecondone(patentsare claimedessentialbecausetheirownersparticipateinthe standard-isationprocess)isstrongerthantheﬁrstone(patentsareclaimed essentialbecauseoftheirhighintrinsicvalue).

5. Conclusionanddiscussion

Thequestionofwhatmakescompaniesclaimthattheirpatents are essential for a technical standard is fascinating. Ifthis is a resultofthetechnicalvalueofthepatentedtechnology(attributing valuetothestandard,suchasincreasedperformance,better cost-effectiveness,etc.),thereshouldbenoconcern.Ifnon-producing ﬁrmswouldbelicensingthesepatentsformonetaryreturn,and thecompensationisinlinewiththetechnicalvalueofthe technol-ogymadeavailable,thenitwouldbeagoodexampleoftheopen innovationmodelasdescribedbyChesbroughetal.(2008)andthe marketsfortechnologyassuggestedbyAroraetal.(2004). How-ever,ifpatentsareclaimedtobeessentialasaresultofthestrategic behaviouroftheparticipantsinstandardsbodies,buthaveno gen-uinetechnicalvalue,wehaveadifferentstory.Itcanbeargued thatthiswouldbeundesirablefromapublicwelfarepointofview andactuallyincompatiblewiththefundamentalprinciplesof stan-dardcreationasitwouldunnecessarilyrestrictaccesstostandards, createbarrierstotheiruseandadoption,andincreasetheircosts. Furthermore,suchbehaviourcouldunnecessarilycomplicatethe standardfromatechnicalpointofview,aconcernthatwasrecently expressedbythechairmanofETSI’sIPRSpecialCommitteewhen heobservedanincreaseofwhathecalled‘marginalpatents’.12

Ourstudyonthedeterminantsofessentialpatentclaimsshows thatintheW-CDMAcase,essentialpatentclaimsareboththeresult ofintrinsictechnicalvalue(‘merit’)andoftheinvolvementoftheir

11_Again,_we_obtain_the_same_results_concerning_the_different_size_of_the_two

coef-ﬁcientsalsoestimatingasimilarsetofmodelsthatdonotcontrolforthetwo

“technologyspecialists”companies.

12_“[There_is_a]_risk_of_complicating_the_solutions_just_for_getting_patented

tech-nology intothe standard rather thanto improve thestandard.” DirkWeiler,

standardsrelated patentQuality Aview from astandardisation organization,

EC/EPOWorkshopon“Tensionsbetweenintellectualpropertyrightsand

stan-dardisation:reasonsandremedies”,Brussels,22November2010.Availablefrom

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R. Bekkers et al. / Research Policy 40 (2011) 1001– 1015 1011

Logisticregressions(standardisedcoefﬁcients).Dependentvariableis“Essential”.

(1) (2) (3) (4) (5) (6)

Adjustedforwardcitations 0.294***_(0.0415) _0.320***_(0.0373) _0.299***_(0.0319) _0.283***_(0.0310) _0.278***_(0.0310) _0.278***_(0.0309)

Workitemssupported 0.567***_(0.125) _0.661***_(0.0817) _0.730***_(0.0577) _0.912***_(0.0430) _0.908***_(0.0432) _0.908***_(0.0427)

Applicationyear −0.0125(0.0151) −0.0114(0.0129) −0.00332(0.0119) 0.000533(0.0118) −0.000113(0.0116) Totalpatents 0.568***_(0.169) _0.515***_(0.126) _0.141**_(0.0692) _0.225***_(0.0682)

Technologicalconcentration(Herf.) 0.747***_(0.235) _0.766***_(0.203) _0.296**_(0.122) _0.391***_(0.106)

Europedummy 0.743***_(0.190) _0.977***_(0.188) _1.008***_(0.158) Asiadummy 0.789**_(0.375) _0.156_(0.227) _0.696***_(0.170) R&Dexpenditures 1.070(0.769) 0.881***_(0.263) Employees −0.552***_(0.207) Salesturnover −0.943***_(0.330) Qualcommdummy 4.656***_(0.228) _4.660***_(0.205) _4.807***_(0.179) _4.444***_(0.162) _4.372***_(0.153) _4.372***_(0.151) Interdigitaldummy 4.032***_(0.412) _3.912***_(0.360) _4.362***_(0.301) _3.758***_(0.277) _3.999***_(0.255) _3.999***_(0.254) Constant 21.25(30.09) 18.86(25.65) 2.638(23.75) −4.603(23.58) −3.345(23.08) −3.571***_(0.0721) Observations 5480 7363 9550 9550 9550 9550 Log-likelihood −994.0 −1441 −1657 −1681 −1688 −1688 PseudoR2 0.379 0.342 0.332 0.322 0.319 0.319

Standarderrorsinparenthesis.

*_Significant_at_10%. **_Significant_at_5%. ***_Significant_at_1%.

Table8

Logisticregressions(standardisedcoefﬁcients).Dependentvariableis“Essential”.

(1) (2) (3) (4) (5) (6)

Adjustedforwardcitations 0.275***_(0.0425) _0.308***_(0.0390) _0.296***_(0.0332) _0.284***_(0.0323) _0.280***_(0.0321) _0.281***_(0.0321)

Votingweight 0.524***_(0.138) _0.809***_(0.111) _0.949***_(0.0860) _0.956***_(0.0468) _0.939***_(0.0461) _0.940***_(0.0457)

Applicationyear −0.0172(0.0151) −0.0126(0.0129) −0.000742(0.0120) 0.00235(0.0119) 0.00208(0.0117) Totalpatents 0.466***_(0.163) _0.363***_(0.110) _0.177***_(0.0666) _0.234***_(0.0636)

Technologicalconcentration(Herf.) 0.868***_(0.229) _0.839***_(0.199) _0.456***_(0.113) _0.409***_(0.106)

Europedummy 0.450*_(0.246) _0.189_(0.230) _0.455**_(0.191) Asiadummy 1.486***_(0.339) _0.608***_(0.228) _0.886***_(0.176) R&Dexpenditures 2.525***_(0.650) _0.428**_(0.208) Employees −0.687***_(0.217) Salesturnover −0.194(0.241) Qualcommdummy 4.178***_(0.283) _3.650***_(0.213) _3.502***_(0.192) _3.171***_(0.149) _3.102***_(0.140) _3.104***_(0.140) Interdigitaldummy 4.916***_(0.400) _4.853***_(0.366) _5.247***_(0.296) _4.971***_(0.287) _5.196***_(0.266) _5.201***_(0.265) Constant 30.99(30.12) 21.43(25.79) −2.425(23.86) −8.222(23.73) −7.690(23.30) −3.546***_(0.0718) Observations 5,480 7,363 9,550 9,550 9,550 9,550 Loglikelihood −997.3 −1446 −1677 −1691 −1700 −1700 PseudoR2 0.377 0.339 0.324 0.318 0.315 0.315

Standarderrorsinparenthesis.

*_Significant_at_10%. **_Significant_at_5%. ***_Significant_at_1%.

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holdersinthestandardisationprocess(creatingroomforstrategic conduct).Weobserve,however,thattheinvolvementintheprocess isastrongerdeterminantthanthetechnicalvalueofthepatent. Whileourﬁndingsareinlinewithseveralotherstudiesproviding evidenceoftheexistenceofbotheffects,thisstudy–tothebest ofourknowledge–istheﬁrstonethathasconsideredbotheffects simultaneously.

Assumingthatforwardcitationsdorevealpatentvalue,we con-cludethattechnicalvalueisasignificantdeterminantofclaimsof essentiality.Wefindapositive,significantandrobustrelationship, andlookingatthedata,weindeedobservesetsofpatentswith ahigherthanaveragevalueeventhoughtheowner(Qualcomm) wasnotactivelyparticipatinginthestandardsbodyinquestion atthetimethetechnologywasdetermined.Thesepatents obvi-ouslybecameessentialbyvirtueoftheirtechnicalvalue.(Infact, mostofthedifferent3Gcandidatetechnologiesputforwardin1999 reliedonthatsametechnology;seeBekkers(2001)foradetailed account.)IfweremovetheQualcommpatentsfromourdatabase, weseethattheinfluenceofthetechnicalimportanceofpatents onessentialityisreduced,whileatthesametimetheremaining firmsshowanevenstrongerbehaviour.SoQualcomm’spatents areofhightechnicalimportance,andthisfirmwasprobablynot behavingstrategicallyinthestandardsettingprocess(intermsof theinvolvement wearecapturing inourstudy).Assuming that thevotingweightafirmhasinthestandardsbody,andtheactual involvementinthestandardsdraftingprocess(capturedby regis-tered‘workitemsupport’),arebothproxiesoftheopportunitiesfor involvementandinfluencingthecontentofthestandard,we con-cludethatstrategicinvolvementisalsoasignificantdeterminant ofclaimsforessentialitems.Beinganactivememberhelpstoget moreessentialpatents.Furthermorethestatusofactivemember isfoundtobeastrongerdeterminantthanthetechnologicalvalue ofthepatentascapturedbyforwardcitations.

Wewillnowfurtherdiscusstheimplicationsofthesefindings. Althoughpreviousstudiesontheerabeforetheemergenceof stan-dardsbodieshaveshowncasesinwhichmarketaccessandfirm performancewashighlydictatedbypatentstrategiesofessential patentowners(Bekkersetal.,2002),itwouldbeunreasonableto suggestsuchaneffectinthecurrentcontextwhereformal stan-dardsbodieshave(F)RANDregimes.Also,wedoobservesignificant changesinmarketshareovertimeinthemarketweexaminehere: inthemarketformobileterminals,thecurrentnumbertwoand threepositionareforSamsungandLG,twoSouth-Koreanfirms thatwerehardlyactiveontheglobalmarketadecade ago,and thenumber two positionin mobileinfrastructure hasrecently beencapturedbyaChinesesupplier,Huawei,whoseglobal activ-itieswerenegligibleevenshorterago.AlsoAppleandResearchin Motion(makeroftheBlackBerryphone)areexamplesofsuccessful newentrants, outside the setof ‘incumbent champions’. How-evertheseconsiderationsdonotmeanthatownershipofessential patentsisnotextremelyimportantinthetelecomsector.While reliabledataonactuallicensingfeesforspecifictechnologiesare hard tofind,someparties havebeenclaiming licensing feesof upto30%formobiledevices,13_much_more_realistic_estimates_are

givenbyarecentstudycommissionedbytheEuropeanCommission (Interplay,2010).Here,itisestimatedthattheaggregate licens-ingfeesforﬁrmsimplementingW-CDMAphonesisapproximately

13 _For_GSM,_the_predecessor_of_W_CDMA,_the_director_of_the_European_public

TelecommunicationsNetworkOperators’association(ETNO)revealedthatroyalty

feesmakeup29%ofthecostsofGSMhandsets(Taaffe,2000).Someindustryanalysts

claimthat“EstimatesforcumulativeroyaltiesforWCDMAarebetween25%and

30%andthemobileindustrycouldspendUS$80-100billiononWCDMA-IP-royalty

paymentsupto2017_(Poropudas,_T.,_2006._ETSI_moves_to_exclude_Qualcomm.

MobileMondayGlobal:IndustryNews,1March2006).

12%ofthewholesale(‘ex-works’)valueofthesedevices.Firmsthat haveareasonablystrongpatentportfoliothemselvescan negoti-atecross-licensesandwouldtypicallybepayingaround8%(which alreadysignalsthevalueofowningsuchpatents).Alsothehigh numberofhigh-profilepatentcasesinthisfieldsignalsthe eco-nomicimportanceofthesepatents.Thesenumbersillustratethe substantialsumsofmoneyinvolvedandthepossibledistortionof themarketifthesesumsarepaidforpatentsthatdonothaveactual technicalvalue.Infact,itislikelythatthepivotalmonetaryand strategicvalueassociatedwithessentialpatentshavecontributed totriggeranumberofhigh-profilelegalcasesandcomplaintsto authorities,suchasQualcommsuingbothNokiaandBroadcomfor patentinfringementintheUSandtheUK(includingacomplaint withtheU.S.InternationalTradeCommission),Nokiasuing Inter-digitalinboththeUSandintheUK,sixlargefirmsfilingacomplaint againstQualcommwiththeEuropeanCommissionforexcessive royalties(acasethatwasdroppedlateron),14_and,_recently,_Nokia

ﬁlingalawsuitagainstAppleintheUS,arguingthattheiPhone infringeson itsessential patents, followed by a countersuitby Apple.15

Having performed this analysis for one single standard, the questionemergeshowgeneralizableourresultsare.Ingeneral,we believethatourfindingswillholdforalltechnologiesforwhich essentialpatentsareclaimedbytheirrespectiveowners.Thisis certainly thecase for technologiesthat arestandardisedin set-tingswherea(F)RANDpolicywithdeclarationsofessentialpatents applies.Thisincludesvirtuallyallformalstandardsbodiesaround theworld.Arecentstudyonpatentsinstandardscommissionedby theEuropeanCommissionanalysedelevenmajorformalstandards bodies,andidentifiedmorethan200standardsforwhichpatents wereclaimed(Interplay,2010).Thenumberofclaimedpatentsfor standardsisveryskewed,however.Thereportdistinguishesfour categories.Thefirst,‘Telecomstandards’includessevenstandards thathave(much)morethan100patentsclaimed,andanother20 standardswithlessthan100claimedpatents.Thesecondcategory, ‘ITandconsumerelectronics’,includesmanypicture,audioand videocodingstandards,andcomputerinterfaces(e.g.FireWire).For mostofthesestandards,between20and100patentsareclaimed. Thethirdcategory,‘Enablingtechnologies’,includesstandardsthat arespecificallydesigned forcertainapplication areas.Here,the RFIDstandard hasmorethan 100claimed patents,manyother standards have typicallyone to 20 patentsclaimed (one inter-estingexampleis‘agricultural electronicsidentification’.Finally, thecategoryof‘Genuinenon-ICTrelatedstandards’hasfew stan-dardsforwhichpatentsareclaimed,andthenumberofpatentsfor thesestandardsisgenerallylow.Inadditiontotheformalstandards bodies,manystandard-developingforaandconsortiahavesimilar (F)RANDpolicieswithdeclarationrulesaswell.Manytechnologies, particularlyconsumerelectronicsstandards,havebeendeveloped insuchsettings.(Well-knownpoolsarethetwopoolsforDVD tech-nologiesandthepoolforMPEGcodingstandards.)Weexpectthat ourfindingwillholdforsuchtypeoforganisationsaswell.A spe-cificcategorywouldbethosestandardsforwhichpatentpoolsare established.Inordertocomplywithantitrust/competitionlaws, suchpoolsvirtuallyalwaysincludeaprocedurewherecandidate patentsarethoroughlytestedforessentiality,usuallybyan exter-nalevaluator.Becausethislimitsthepossibilityofpartiesclaiming non-essentialpatentstobeessentialweexpectthat,comparedto ourfindings,technologicalvaluewillprevailoverstrategic

involve-14_See_Bloomberg._Qualcomm_Antitrust_Probe_Is_Dropped_by_EU_Regulators.

Novem-ber24,2009.

15_See_Financial_Times,₂₂_October_2009,_“Nokia_takes_on_iPhone_in_legal_ﬁght”,_as

wellasTheEconomist(onlineedition,23October2009),“DialLforlawyer:Anasty