Standard Setting Organizations and Standard Essential Patents: Voting and Markets

Abstract

The key finding is that Standard Setting Organizations (SSOs) choose efficient technology standards because voting power and market power have counterbalancing effects. Agents on the long side of the market have less added value in the marketplace but more voting power in cooperative organizations and conversely for the short side of the market. In a two-stage model, industry members choose technology standards by voting and then compete in the marketplace. Even when there are disagreements among vertical industry groups, SSO members vote for the efficient standard unanimously. When there are Standard Essential Patents (SEPs), technology adopters also vote for the efficient standard unanimously. Inventors that own SEPs will support the efficient standard under some voting rules. When there are disagreements within industry groups, SSO members choose efficient standards by majority rule, with or without SEPs. When the efficient standard has SEPs and the inefficient standard does not, SSO members choose the efficient standard with a drastic innovation or, when the innovation is non-drastic, with particular voting rules. The results help explain the choice of technology standards by SSOs, the design of SSO voting rules, and the selection of SSO rules governing intellectual property (IP).