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How do Standards Undermine Patent Thickets?

It is well accepted that firms that contribute to technology standards in standards-setting organizations benefit in a variety of ways. They can potentially enjoy substantial time-to-market lead, enhance reputation to their business partners and customers, and make profit by licensing their standards-essential patents. What about the firms that do not contribute but may need the standards to develop new products? How do they benefit?

One way that standards may help these technology developers is to mitigate the uncertainty arising from patent thickets in technological areas. Patent thickets are overlapping webs of patents that any firm trying to commercialize new technology must hack its way through. Patent thickets can impede or at least slow down innovation, because the innovating firms have to spend much money and time to reach licensing agreements.

IM professors Dr. Wen Wen and Dr. Sirkka Jarvenpaa explore how the standardization process within standards-setting organizations might help technology developers to navigate the patent thickets. Based on a large-scale dataset, their study (in collaboration with Dr. Chris Forman from Georgia Tech) suggested that formal standardization reveals important patent holders and clarifies licensing terms; as a result, technology developers are less likely to patent defensively in highly standardized areas. Given its important policy and managerial implications, the paper reporting on the study won the Best Paper Award at the prestigious Workshop on Information Systems and Economics (WISE). Click here to read full study.