Key Take Away
AI systems label a specific model of innovation that benefits from a wide range of contributors; be they inside or outside the firm. The role of patent law as an organizational principle of this type of ‘networked innovation’ remains yet to be adequately governed. In AI business thrives because of the interconnected framework in which it is embedded in.
The Novel Economic Framework Provided by Artificial Intelligence
AI is still at its early stage and the opportunities it can offer have not even been seized yet to its full extent. At present, we do not even know the many different creative ways in which entrepreneurs will take AI forward. Entrepreneurs are experimenting with leveraging the AI in areas as vast as fashion or primary healthcare. Which businesses will ultimately prove viable remains still to be seen. AI is also big business. Investors expect growth rates as high as 20%.
In AI it is not the single device that creates value, but the ability to connect a sheer infinite number of devices with each other. The worth relies in the continuous expansion of the connection. It is the interconnectivity that creates value, not just the simple ownership of a single device.
At present most connected devices or telecom networks are controlled by humans. However, a key feature of the AI is that devices will be controlled by other devices (the controllers). These again can be classified in various ways, so to reflect the specific features of the controller. In the networked architecture of the AI various devices are at the same time receivers and suppliers of information; making it increasingly difficult to untangle the net of who provides and who receives proprietary technology and who adds value to the technology.
The Need for Standards
Standard setting will be instrumental for the success of AI. It is only through a common language, the adoption of an interoperable and connected system that the wide spread use of AI can succeed. The process of standardisation will enhance innovation efficiency because it enhances compatibility and increases the credibility of technological solution. This standardisation process will likely be highly beneficial to the widespread dissemination of AI.
The success of a standard is based on its wide dissemination; its value derives from its vast usage. This stands in sharp contrast to patents, which are negative rights built around exclusivity. Contrary to a standard, the value of a patent derives from its strength to exclude to the best extent possible third parties from using it; unless obviously a third party is willing to pay for its usage.
This is why the inherent dilemma between patents and standards is hard to overcome. It is a tension between ‘free access and tight control.’ This tensions is well pronounced in the standard essential patents debate. A patent declared essential to a standard is a strange hybrid that combines patent laws’ negative right’s aspect with a standard’s capability to disseminate a technology as wide as possible. As this formula bears the potential to accrue exceptional market power in the hands of patent owners, while at the same time rendering access to proprietary technology potentially very expensive, the (F)RAND (fair, reasonable and non- discriminatory) promise was introduced.
Nonetheless the (F)RAND commitment translates into an insufficiently complete contract between licensors and licensees. This is because of a built-in ambiguity over what “fair, reasonable and non-discriminatory” means; an ambiguity that is not addressed by means of the policies themselves but is expected to be resolved by “others”. This has led commentators such as Swanson & Baumol to argue that the (F)RAND commitment is of limited value in the absence of objective benchmarks that make clear the concrete terms or range of terms that are deemed to be reasonable and non- discriminatory. This vagueness can lead to abuse and antitrust issues. The situation is furthermore complicated by clandestine licensing markets and the absence of publicly available royalty rates that could be used as benchmarks to determine the value of a royalty rate of a SEPs.
Further issues pertain to a lack of clarity on ownership and distribution of patents that read on standards. Equally, there is lack of consistency as it pertains to the valuation of standard essential patents. Lack of clarity can also lead to a host of other unresolved challenges, such as negotiations taking potentially place in the shadow of the law and potential asymmetrical bargaining power between SEPs owners and downstream innovators.
Against this background, it is suggested to study the following issues further:
2) Clarity on ownership and numbers of standard essential patents
3) Exploring ways to enhance transparency in markets for standards essential patents by making the licensing rates and licensing contracts publicly available
 European Patent Office. (2007). Scenarios for the future: how might IP regimes evolve by 2025? What global legitimacy might such regimes have? Europäisches Patentamt. See “Blue Skies” scenario
 Miller, J. S. (2006). Standard setting, patents, and access lock-in: RAND licensing and the theory of the firm. Indiana Law Review, 40, 2007-6., at P.6
 Lemley, M. A., & Shapiro, C. (2006). Patent holdup and royalty stacking. Tex. L. Rev., 85, 2163.
 Swanson, D. G., & Baumol, W. J. (2005). Reasonable and non-discriminatory (RAND) royalties, standards selection, and control of market power. Antitrust Law Journal, 73(1), 1-58. At p.5
 Lemley, M. A. (2002). Intellectual property rights and standard-setting organizations. California Law Review, 1889-1980; Miller, J. S. (2006). Standard setting, patents, and access lock-in: RAND licensing and the theory of the firm. Indiana Law Review, 40, 2007-6., at P.11. In ‘Rambus Inc. v. Infineone Technologies. 318 F.3d 1081 (Federal Circuit 203) cert. denied 540 US 874 (2003)’ the inherent uncertainty of the (F)RAND agreement played also a major role. Cited according to Miller (2006)