On the Practical Irrelevance and Theoretical Inadequacy of the Royalty-Stacking Benchmark in Standard-Essential Patent Negotiations

By Gerard Llobet & Jorge Padilla

Royalty stacking is the focus of this article. The licensing of SEPs has become a controversial issue. Some companies, IP practitioners and scholars argue that SEP holders are over-rewarded as a result of what they call “patent hold-up” and “royalty stacking.” The proponents of the idea of royalty stacking claim that patent holders licensing different and complementary SEPs will set royalties that are too high. Because SEPs are perfectly complementary, a monopolist would choose the same royalty regardless of the number of technologies. However, the more fragmented patent ownership is, the higher the total or aggregate royalty burden will be faced by manufacturers implementing that standard.