The Power of Standards: Empirical Evidence from China’s Standard Essential Patents

While the importance of standards has been extensively discussed, numerous gaps remain regarding the relationship between technical standards and innovation, mainly due to two reasons. Firstly, the process of stan⁃ dardization itself is complex. Secondly, technical standards may simultaneously give rise to market monopolies and positive externalities. To address these challenges, this paper employs the difference-in-differences method to study how technical standards affect patent value and corporate innovation using data merged from the Standard Essential Patent Database, the Chinese Patent Database, the Chinese Listed Company Database, and the Chinese Industrial En⁃ terprise Database.

The empirical findings are as follows. Firstly, after being declared as standard-essential, a patent experiences a significant increase in value, as evidenced by increases in citation counts and licensing frequencies of the patent, as well as a rise in the market value of the corresponding patent holder. Secondly, the significant enhancement effects of standards on patent value vary with the patent’s technological field and its relative position in the field, as well as the influence of the related standard. Thirdly, the boost in patent value primarily results from the expanded scope of patent influence caused by the adoption of standards, reflected in increased citations by patents from technological fields outside one’s own, by patents covering a larger number of technological fields, and by non-standard essential patents. Fourthly, the returns to the technical standard contributor can be attributed, at least in part, to increased mar⁃ ket power, as evidenced by greater benefits for small-scale innovators, higher market concentration, and a smaller number of new entrants. Fifthly, standards also generate knowledge spillover effects within the industry, leading to sig⁃ nificant improvements in corporate innovation in terms of quantity, quality, and overseas distribution.

The research findings suggest that while technical standards facilitate technology diffusion and corporate innova⁃ tion, they also wield market power, resulting in additional market value for the associated patent technology beyond its inherent technological contribution. The following two-fold policy implications can therefore be derived from the study: On the one hand, it is necessary to strengthen technological standardization and internationalization of stan⁃ dards, to effectively promote technological progress. This includes encouraging companies to actively participate in the global standards-setting process, providing guidance to firms in the integration of technology, patents, and stan⁃ dards, and improving the efficiency of cultivating standard-essential patents. On the other hand, it is essential to re⁃ main attentive to the potential monopoly effects arising from patent exclusivity and the lock-in effects due to the adoption of standards. These effects may lead patent owners to abuse their dominant market positions by charging un⁃ reasonably high license fees. Thus, it is crucial to reinforce rules and regulation when developing and implementing technical standards so as to mitigate the potential monopoly consequences.

In conclusion, this study contributes to the existing literature on innovation by expanding our understanding of how technical standards influence technological innovation and industrial upgrading, and it provides empirical support for the adoption of a systematic approach in China’s intellectual property strategy in actively promoting international standard-setting while paying attention to potential monopolistic behaviors.

Related database: Chinese Patent Database, Chinese Listed Company Database, Chinese Industrial Enterprise Database

Recommended citation: Long, X. & Zhang, M. (2023). The Power of Standards: Empirical Evidence from China’s Standard Essential Patents. Management World (in Chinese), 39(10), 149-168+227. 龙小宁,张美扬.标准的力量——来自中国标准必要专利的经验证据[J].管理世界,2023,39(10):149-168+227.
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