Standard-setting and the incentives to innovate: Evidence from the IEEE patent policy update

Abstract

This paper investigates how stricter licensing rules affect firms’ incentives to innovate in standard-related technologies. I study the 2015 patent policy revision by the Institute of Electrical and Electronics Engineers (IEEE), which limited SEP holders’ ability to seek injunctions and encouraged royalties based on the smallest salable unit. Using a continuous difference-in-differences approach, I show that the new policy increases standard-related patenting, with the strongest effects among firms furthest from the standards’ technology space. However, the effects differ across firm types. SEP holders reduced their innovation activity, consistent with weaker royalty incentives, while non-SEP firms expanded patenting, benefiting from lower licensing costs and new opportunities to reposition themselves. Although the policy created challenges for SEP owners, my results suggest that the broader increase in innovation among other firms outweighed these declines. These results highlight how patent policy design within standard setting organizations can reallocate innovation incentives across firms.