Patent Counting, a Misleading Index of Patent Value: A Critique of Goodman & Myers and its Uses

Abstract

The choice of method for allocating royalties among intellectual property ("IP") owning members of a standards setting organization ("SSO") has substantive implications for investment in technological innovation, the allocation of resources between technology firms and consumer welfare. A small but vocal minority of participants in the industry for wireless communications have proposed, and various industry analysts have reported, that determining the pro rata share of "essential" patents to a given technology standard held by each different patent owner and multiplying such share by some arbitrarily determined maximum royalty is the appropriate method for determining the appropriate level of royalties that each such patent owner should be able to obtain. These same proponents have argued that, based on their theory of "numerical proportionality", QUALCOMM's IP rights underlying WCDMA, a 3rd generation ("3G") wireless communications standard, do not justify the level of royalties that dozens of companies, including most major wireless equipment manufacturers, have voluntarily agreed to pay it in the course of arms-length bilateral negotiations. We show that this view is fundamentally flawed as: (i) it is based on an erroneous interpretation of a questionable paper entitled "3G Cellular Standards and Patents" ("the Nokia G&M paper") written by David Goodman and Robert Myers and funded entirely by Nokia yet without attribution); and (ii) patent counting or indeed any other known quantitative approach is not a realistic (or accurate) method for determining the value of a patent portfolio, as confirmed by the absence of support for such methods in legal or economic literature.

Keywords: standards, WCDMA, patent counting, numerical proportionality, patent value, essential patents, Goodman Myers,