Standard essential patents to boost financial returns

Abstract

Numerous innovative applications build upon standardized technologies. These technologies increasingly incorporate standard essential patents (SEPs). It is crucial to own SEPs in order to achieve and maintain significant market shares. We test the influence of owning SEPs on a firm's financial performance. In our analysis, we use a unique dataset of firms participating in international standard setting organizations (SSOs). Our results indicate a curvilinear (inverse U-shaped) relationship of owning SEPs on a firm's return on assets. The curvilinear relationship suggests that firms should balance their patent portfolio by holding a share of patents, which are essential for standards, and by holding a share of patents on technologies that are not standardized. Our results further show that the effects of owning SEPs depend on the specific SSO as well as on the size of the patent portfolio. Our findings are a first step toward identifying and assessing the financial impact of patents essential to standards. Our empirical tests suggest that companies should pursue a common strategy for patenting and standardization to exploit patented inventions in technology fields where standards matter

The impact of participation within formal standardization on firm performance

“…Hence, only if the technology is effectively protected by intellectual property rights (IPR), the technology-developing service providers are able to realize profits from standard setting by enhancing the visibility and diffusion of their technologies. This way, they are able to generate license revenues or similar incomes as shown by Pohlmann et al (2015). This assumption regarding the importance of IPR protection and its benefits is in line with findings by Rysman and Simcoe (2008).…”

The strategic use of patents and standards for new product development knowledge transfer

“…These are patents that protect technologies essential to a standard. Pohlmann et al () find significant positive returns for firms if their patent portfolio includes standard essential patents. Conversely, external developments in standardization and patent applications that have the potential to become relevant for the internal development of new products should be observed from the very early stages of new product development.…”

Technical standards, standards-setting organizations, and intellectual property: a survey of the literature (with an emphasis on empirical approaches)

“…Firm Performance. Pohlmann, Neuhäusler and Blind (2015) and Mallinson (2015) approach the question of SEP value from the standpoint of firm financial performance. Polhman, Neuhäusler and Blind analyze the return on asset (ROA) performance of 134 firms involved in standards-development over an 8-year period.…”