IEEE Patent Policy
The Institute of Electricals and Electronics Engineers (IEEE) has introduced two new policies with the aim of streamlining the patents in the industry. The two proposals include termination of injunction relief and basing royalty’s calculation on the smallest saleable component of the innovation (“Michael Armstrong th edition 10 HUMAN RESOURCE MANAGEMENT PRACT ICE”, 2016). The proposals continue to cause mixed feelings among stakeholders with economists and industry experts expressing concerns that although they help to alleviate the hold-up problem, they pose a risk of lower innovation levels in the industry.
From a personal perspective, I agree with the above concern. This is because the two rules seem to focus more on the implementer’s interests rather than the innovators welfare. The only way to solve the hold-up problem is to focus on all the parties involved in the organization so as to come up with an amicable solution. Note that there would be no SEP without the innovator who comes up with the technology and the implementer who promotes the technology within the industry. This essay will analyze the two policies and their weaknesses and propose a policy that would produce the desired effect.
Smallest saleable component
Previously, negotiations on royalties were based on the potential value of the patent to the market, and there was no specific guideline of how to determine this value. The implementer and the SEP holder were in charge of determining this value. However, under the new policy, the value of the smallest saleable component will determine the royalty. This is unfair for the innovators since one innovation often has multivariable use within the industry. For example, if the smallest element is a microchip with high memory storage, it can be used in numerous devices such as phones and cameras and will enable the implementer to make more sales. Thus, if the innovator should enjoy the all the added value including the higher sales that come with the SFP not only the value of the microchip. Further, the rationale for this change is unfounded since it aims to reduce confusion that comes with litigation cases(Galasso & Schankerman, 2014). Although most jurors evaluate the value of royalty on the smallest saleable component, it is critical to understand that most of them are unaware of the real value of SFP patents.
This refers to the amount of payment attributable to the innovator should the implementer employ delay tactics in negotiating the patent or infringes the patent on a later date. The new policy eliminates these payments reducing the innovators ability to leap any damages until after a RAND litigation and approval. This action is unfair since the IEEE compels the SFP holder to give unlimited access to the innovation to all implementers. Thus, the implementers may decide to infringe the innovation since it would cost a lot of money for the innovators to sue them in court. As a result, removal of this relief eliminates the innovators bargaining power placing the implementer on the upper hand(“Michael Armstrong th edition 10 HUMAN RESOURCE MANAGEMENT PRACT ICE”, 2016). Also, the negotiations come after the innovator has spent money to produce the technology while the implementer has nothing to lose since they do not spend funds till after the negotiations.
Marginal analysis of the problem
In conducting a marginal analysis of the effects of the two proposals on innovations, the author considers the costs and the benefits that innovators gain from the patents. The costs include research and development and time (Sampat, Williams,2015). The benefits, on the other hand, are royalties and injective relief. The innovators will be more willing to carry out research to come up with new patents if the benefits are higher than the costs.
The IEEE should base the royalty payments on the total market value of a patent. Since the problem is in the determination of the market value, the board should come up with a muti-variable formula to calculate the market value. This standard is different from the current policies as it considers the total economic benefit attributable to the patent rather than the value of the smallest saleable component in the existing standard. It would help to ensure that the innovators are not short-changed by the implementers.
It will be interesting to evaluate the effectiveness of the two proposals in the industry. We are yet to see how the two limitations placed on the innovators will affect their willingness to design new technologies. However, the IEEE will be keen to examine the implementation of the proposal and amend them should the necessity arise.
Galasso, A. & Schankerman, M. (2014). Patents and Cumulative Innovation: Causal Evidence from the Courts. The Quarterly Journal Of Economics, 130(1), 317-369. http://dx.doi.org/10.1093/qje/qju029
Michael Armstrong th edition 10 HUMAN RESOURCE MANAGEMENT PRACT ICE. (2016).Academia.edu. Retrieved 14 July 2016, from http://www.academia.edu/8593967/Michael_Armstrong_th_edition_10_HUMAN_RESOURCE_MANAGEMENT_PRACT_ICE
Sampat, B., & Williams, H. L. (2015). How do patents affect follow-on innovation? Evidence from the human genome (No. w21666). National Bureau of Economic Research.