Original Sin

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John Harkrider, Mar 31, 2015

While SEPs could be a potential predator in the hands of a firm that wants to raise the costs of its rivals, the Administration’s intervention on SEP enforcement, while doing nothing with respect to non-SEPs, can have three unintended consequences:

  1. Because cross-licenses are determined on a portfolio-wide basis, with SEPs being used to offset royalty demands on non-SEPs within the counterparty’s portfolio, the elimination of SEPs as a counterweight means non-SEP software patents are now increased in value in a negotiation or litigation with an SEP holder. If we assume that in the status quo the exclusive power of non-SEP software patents are set at an optimal level, this increase in the value of non-SEP patents vis-à-vis SEP holders can lead to higher prices and diminished innovation in the market.
  2. Because firms can no longer obtain injunctions if they declare their patents as essential to SSOs, but can obtain injunctions if they do not, firms can have increased incentives to invest in proprietary technologies outside of the standard-setting context. As a result, technologies that would have been protected by enforceable RAND commitments may no longer be so protected.
  3. Because operating companies bringing lawsuits on SEPs are now subject to antitrust scrutiny, there is an increased risk that operating companies will sell their SEP portfolios to trolls who can monetize

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