Asymmetric information in standard-essential patent licensing

Abstract

This thesis explores to what extent licensors disclose licensing information on their official channels, how they market their licensing programs, and what actions they take to reduce the information asymmetry. To respond to the research questions, an in-depth analysis of Standard-Essential Patent licensing and asymmetric information was made through the literature review, theoretical framework, and empirical analysis. To do so, case companies and patent pools were reviewed, and semi-structured interviews with experts were conducted.

Companies and patent pools provide licensing information on their official channels such as websites, press releases, and annual reports. Based on the data, the disclosed licensing information includes the structure of the licensing programs, targeted products, patent portfolios, royalty rates, and financial announcements. Patent pools generate revenue only through licensing programs. Hence, it is noted that compared to companies, patent pools share licensing information more transparently. In addition to the information disclosed in company channels, patent pools disclose patent lists, information on patent essentiality, lists of licensors and licensees, and a draft of license agreements. The empirical analysis shows that the level of information disclosed in companies and patent pools varies.

Even though licensors market their programs through their official channels, in most cases, licensors are the parties that initiate the licensing negotiations. Asymmetric information occurs in markets when one party holds more information than the other party. In the patent licensing market, licensors are the parties with more information on standardized technologies. The concurrent asymmetric information between licensors and licensees decreases to some extent during licensing negotiations. In the licensing negotiations, licensors provide technical and commercial information to licensees to convince them that the license is needed for their standard-compliant products and that the requested price is fair and reasonable. However, negotiations are often conducted on a confidential basis. So, in most cases, the licensing information never becomes public. For licensors, licensing information is private business information, thus, they are not willing to disclose it in the market.