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.[2]’ 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.[4] This vagueness
can lead to abuse and antitrust issues.[5] 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
[1] 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
[2] 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
[3] Lemley, M. A., & Shapiro, C. (2006). Patent holdup and royalty
stacking. Tex. L. Rev., 85, 2163.
[4] 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
[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)
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