Current industry standards are working – massive changes will devalue American IP and stifle innovation

Standardization plays a fundamental role in developing and implementing the foundational technologies at the core of critical global infrastructure, such as 5G and Wi-Fi. The standard setting process generally includes a commitment from innovators whose new technology is included in the standard to license any applicable patents on fair, reasonable, and nondiscriminatory (FRAND) terms.42 This process enables those innovators to collect royalties to invest in further research and development. It also rewards the innovators for the risk they take in creating new technologies without knowing whether it will be included in the standard. SEP licensing involves complex incentives, highly sophisticated markets, and worldwide portfolio considerations. Critics of the system suggest that it is not working, pointing to the few licensing disputes that end up in court. But the fact that there is some litigation does not mean the system is broken. And in any case, data shows that SEP-related litigation has decreased when normalized to account for the growth of industries implementing SEPs.43 Purported solutions to this non-existent problem, such as the European Union’s recent release of a draft proposal to create a court to set a non-binding royalty rate44 or a similar proposal being informally circulated in the United States to have a single SEPs rate court, will most likely lead to the devaluation of innovator companies’ intellectual property. It will also signal to countries whose domestic industry is dominated by implementors of technology (rather than innovators of it) to create their own system that is explicitly designed to depress royalty rates. This is already occurring in a less systematic form in countries like China, and would predictably be accelerated if the United States signals that significant regulatory intervention in this space is needed.45 In other words, attempting to regulate these markets at home will almost surely guarantee that American IP is devalued abroad. Congress should avoid heavy handed legislation targeting standard essential patents and their licensing environment. The industry is working well on its own, and efforts to undercut it will stifle innovation.