As part of the efforts of Unified Edge, John Jarosz and his team of economists at the Analysis Group have published a paper on the benefits of royalty-free licensing. Read the abstract below and follow the link to download the paper.
Abstract
Much licensing of patented technology is royalty-bearing, allowing innovators to be compensated for their investments in researching, developing, and then in commercializing the resulting products.
However, over the last couple of decades, standards-based technologies have expanded, in part, due to the increased need for device interoperability, communication, and replacement. Though some of the licensing of patents covering such technologies bears royalties, royalty-free licensing of standards-based technology has grown increasingly common. Indeed, perhaps only a small percentage of today’s widely adopted standards-based technologies are subject to royalty payments. Furthermore, there has been a proliferation of non-standards-based patented technologies and protocols that companies offer on a royalty-free basis (e.g., Adobe PDF and Thunderbolt, discussed further below).
The advantages of royalty-free licensing of technology are obvious for competition broadly and can be numerous for both consumers and companies, specifically, those who benefit from, inter alia, reduced costs and lowered barriers to market entry. But royalty-free licensing can be appealing to innovators as well, as it can result in faster adoption, increased usage, and further innovations that incorporate the standardized technologies. Using some well-known examples, this paper examines the widespread adoption of, motivations behind, and benefits associated with royalty-free licensing in standards-based settings, and even, in some cases, outside of a formal standard-setting organization (“SSO”). Though royalty-free licensing has many perceived and actual advantages, it is not the optimal route for all technology licensing. It can be and is, of course, optimal in many settings.