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On Technology Choice in Standardization: Implications for Patent Valuation

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Abstract

The valuation of patents included in standards and their reasonable license fees is affected by two competing views about how and why standards are developed. One view, which emphasizes that standardization is foremost about choosing a technical solution, assumes the availability of roughly equivalent alternatives; the other emphasizes that standardization is foremost about picking the best technical solution, assuming distinctly different alternatives. These views affect patent valuations but often remain implicit in economic and legal studies. This paper examines which view is more accurate from the perspective of standardizers using data from expert interviews and literature study. While the study suggests that the availability of roughly equivalent alternatives is generally more accurate, neither view well-captures the reality of standard development. Typically, the relative technical merit of competing solutions is an important selection criterion, but it is secondary to other critical factors. The findings highlight the interrelatedness of the many technical design choices usually at stake; the negotiability of and trade-offs between multiple performance criteria determining the value of technical solutions; the filtering effect of consensus versus voting committees on actual technology choice; and, not least, the influence of non-technical factors on technology choice. Given these caveats, valuating patents-in-standards on their technical, innovative merit will remain contentious. To better account for the influence of the dynamics of standards processes on technology choice, a valuator’s line of reasoning should address, among other factors, existing alternative technical solutions and multiple performance dimensions. Follow-up research is recommended that examines the implications of patent inclusion for these dynamics.

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