Do the rules shape the game ? SEP license negotiations in the ICT industry

The goal of this paper is to analyse the effect of changes in the European regulation around standard-essential patent (SEP) licenses on the way agents negotiate SEP licenses with each other. In fact, the European regulatory environment has gone through three major regulatory reforms since 2009: the Orange book standard, the Samsung/Motorola decisions and the Huawei v. ZTE judgement. Even though these reforms sought the same objective – namely to protect innovation and prevent monopoly power – their means are, to some extent, quite divergent. Whilst the first reform establishes rather strict conditions on the patent users, the second one reverses the situation, protecting the patent users tremendously. The most recent reform attempts to find a balance between the two previous rules. In this paper, we model the agents’ actions into a Nash bargaining environment, in order to study how the regulatory changes affect the agents’ action sets and strategies. The aim is to identify how the regulatory changes influence the disagreement points of the negotiation game and, eventually, the potential bargaining range within which the agents will agree on a licensing rate. The paper concludes that regulatory reforms do indeed alter the threat points of the agents and, subsequently, alter the negotiated licensing rate. Furthermore, the paper provides some evidence that the last reform may not reach its initial balancing goal.