Intellectual property rights, strategic technology agreements and market structure: The case of GSM

Abstract

This paper investigates the role of intellectual property rights (IPRs) in shaping the GSM (global system for mobile communications) industry. This industry is an example of a high-tech industry in which standards play a large role. In the process of designing the GSM standard, a lot of attention has been given to IPRs, mainly to avoid a situation in which a single IPR holder could hamper or even totally block the development of the standard. Nevertheless, the ultimate GSM standard contains a large amount of so-called ‘essential IPRs’, i.e. IPRs without which the implementation of GSM products is impossible. The GSM case provides an interesting example of how (essential) IPRs ownership and alliance networks influence each other, and how both of them affect market structure and market shares. The play with the essential GSM IPRs, and the strategy of Motorola in particular, is found to have dramatically changed the standardization processes in the telecommunications industry. Where IPR was considered a non-issue in this sector for many decades, it is now among the main issues to be resolved for any new standard, as has recently been shown with the standardization of third-generation mobile networks. Our findings with respect to alliances reveal that timing of the emergence of strong network positions is in line with the findings on essential IPRs. We found for three of the four dominant network players that their position in the network is based on ownership of essential IPRs. The relationship between market power (inclusion in the top-5 equipment suppliers) and the two variables of our main interest (essential IPRs and network centrality) is found to be a positive one with some notable exceptions.