Hitotsubashi University
Institute of Innovation ResearchLandscape of standard essential patents:
The case of East Asian countries

Jianwei Dang
Byeongwoo Kang
Ke Ding

IIR Working Paper WP#16-12

Oct. 2016

Institute of Innovation Research
Hitotsubashi University
Tokyo, Japan
http://www.iir.hit-u.ac.jp

Landscape of standard essential patents: The case of East Asian countries
Jianwei Dang*, Byeongwoo Kang (corresponding author)** & Ke Ding****

Business School, University of International Business and Economics, China**

Institute of Innovation Research, Hitotsubashi University, Japan***

Inter-disciplinary Studies Center, Institute of Developing Economies (IDE-JETRO), Japan

Abstract: Technical standards in the mobile communications industry have been developed
from national to regional and from regional to global. In the current era, global standards inthe industry have enabled the formation of a single global market. However, because standard
essential patents (SEPs) are territorial given the nature of the patent system, they can function
as an opportunity or a threat depending on whether or not they are protected in countries ofinterest. This paper investigates how W-CDMA and LTE SEPs owned by East Asian
countries are globally distributed. From the analysis, the current study discovers East AsianSEP owners’ strategies, future opportunities, and threats in their international businesses.

Keywords: East Asia, Essential Patent, Standard

JEL classification: L19, O30, O53

1

1.

Introduction
In 2014, standard essential patents (SEPs) were re-recognized as a powerful tool for amanufacturer from China to use in order to operate a business built on relevant standards.
SEPs are patents that contain essential technologies to run relevant standards. In 2014,
Xiaomi, a smartphone manufacturer from China, infringed on SEPs owned by Ericsson. The
result was a nightmare for Xiaomi. The Delhi High Court ordered the company to halt thesale, advertising, manufacture, and importing of its phones in India. This event indicated thatinternational trade can be affected by SEPs even if the target standards are aimed at global
markets.
Inspired by Xiaomi’s case, this paper aims to investigate the geographical distribution of
SEPs and to understand them from the East Asia perspective. First, understanding thegeographical distribution of SEPs helps reveal trade-related opportunities and risks. Because
SEPs are territorial, their owners can have exclusive rights only in the countries in which the
SEPs are filed. In other words, this study does not analyze who owns “how many” SEPs eventhough such an analysis is meaningful in some sense. Emphasizing the fact that any single
SEP can stop an entire standard system, this study focuses on who protects “where.” In
addition, because a patent filing represents a tradeoff between dominance and cost, this study
assists in understanding the markets considered important by each SEP owner and thoseconsidered an opportunity or a risk given SEPs’ geographical distribution. Second, theanalysis is done from East Asia’s perspective. The information and communication
technology (ICT) industry, one of the most important in East Asia, is a typical industry forwhich standards play a pivotal role in its growth. Understanding the degree to which East
Asian firms control standards will assist in determining their future business agendas in the
ICT industry.
The contribution of this paper is twofold. First, SEPs’ geography will assist inunderstanding the opportunities for and barriers to international trade created by suchinformation. SEPs have attracted significant attention from scholars. However, recent studies
regarding SEPs discussed their features, their appearance in standardization processes, theirlicensing, and other information. To the best of our knowledge, this approach is the first in
attempting to understand SEPs as a barrier to/opportunity for international trade. Second, thisstudy provides implications for East Asian countries. The ICT industry is very important for2

East Asian countries because it has been a major contributor to their successful economic
growth (Freeman, 1987; Kim, 1997; Amsden & Chu, 2003). Accordingly, this study isconducted in the context of East Asian countries and is expected to assist in revealing
regional trends and perceptions. Analyzing SEPs is a practical approach because SEPrelevant issues are very important in the ICT industry, in which technological standards
largely decide the success and failure of one’s business and, ultimately, the way forward(Shapiro & Varian, 1999).
The remainder of this paper is organized as follows. In the next section, the relevant
literature is reviewed. Then, the research data collection process is explained. The fourth andfifth sections present the findings and a discussion, respectively. The last section summarizes
the findings and discussion, and provides suggestions for future research.

2.

Literature review

2.1 Evolution of mobile communications standards—from national to regional andfrom regional to global
ICT has achieved the most dramatic technological progress in the past few decades. Itsinnovations have affected economic growth in various industries, none more than the mobile
communications industry, which has evolved together with technical standards (Adachi,
2001; Dahlman et al., 2008).
The first-generation (1G) mobile communications systems were implemented in the
1980s. For example, the Advanced Mobile Phone System (AMPS) in the United States,
Nordic Mobile Telephone (NMT) in Nordic countries, the Total Access Communication
System (TACS) in the United Kingdom, and the Nippon Telegraph & Telephone System(NTT) in Japan were developed to provide mobile communication services. Because theservices were aimed at the domestic market, 1G standards were national standards.
The 1990s saw the advent of 2G mobile communications standards: Global System
for Mobile Communications (GSM) in Europe, Interim Standard 54 (IS-54) and IS-95—
better known as the Code Division Multiple Access (CDMA) standard—in the United States,
and Personal Digital Cellular (PDC) in Japan. Related to this generation, a significant step
was taken in Europe in addition to increased throughput. To integrate European countries as a3

single market, GSM was developed as a regional standard in Europe. The original goals ofdeveloping GSM were to achieve significant economies of scale in equipment supply and toprovide roaming services (Shurmer & Lea, 1995; Gandal et al., 2003). Accordingly, GSM
standardization efforts were made by firms in European countries. 1 In this sense, 2G
standards were regional standards.
Demand for higher throughput always exists in the mobile communications industry.
However, since the 1990s, demand for a global standard in the mobile communicationsindustry had increased as an increasing number of people started to travel around the worldand sought roaming services. As a result, global partnerships were created to develop 3G
mobile communications standards that avoided restrictions to specific regions. However,multiple global standards were developed by different partnerships. For example, theWideband-CDMA (W-CDMA) standard, officially a part of the Universal Mobile
Telecommunications System (UMTS), was developed in 3GPP and the CDMA 2000 standard
was developed in 3GPP2. 2 It is not difficult to imagine that standard wars occurred globallyin the mobile communications industry.
The trend to set a global standard has continued for the 4G and 5G standards in themobile communications industry.

2.2 Standard essential patents (SEPs)
Even if standards in the mobile communications industry are completed through global
collaboration, another issue is deploying these standards into markets. Once a standard isrealized, patents that protect the technologies to operate the standard become SEPs. Thus,
deploying a standard is essentially accompanied by using relevant SEPs. SEP owners havemerits, such as receiving revenue income from other implementers of SEP-comprised
standards, bargaining cross licenses with both SEPs and non-SEPs, and so on. Because SEPs

1

To be specific, Motorola also participated in the GSM standardization. Motorola’s

participation was special because it conducted extensive R&D activities in several European
countries and had a significant number of SEPs for GSM (Iversen 1999; Bekkers et al., 2002).
2

To be certain, 3GPP and 3GPP2 were competitors for the 3G and 4G standards.
4are profitable assets, numerous companies attempt to obtain them by reflecting their own
patents into a standard and by purchasing SEPs from others.
Obtaining SEPs in the standardization process, i.e., reflecting patent-protected
technologies into a standard, is not easy. Standardization is for discussing and testing
technologies to enable the valuable ones that provide better performance to contribute to thestandard (Rysman & Simcoe, 2008). However, because many companies have different ideas
in their technologies, standardization also allows for negotiations with other participants withdifferent interests to harmonize different technologies. Because decisions should be madewith the consensus of participants in the standardization process, standardizationaccompanies numerous interactions between participants (Leiponen, 2008; Bekkers et al.,2011; Kang & Bekkers, 2015; Kang & Motohashi, 2015). As an increasing number
participate in the standardization, the process to reach consensus becomes more difficult.
Benefits exist to owning SEPs. First, SEP owners can receive a reward from standard
implementers. Given the nature of SEPs, whoever implements the standard must have alicense agreement with SEP owners. The reward can be either monetary or non-monetary
rewards or both. The monetary reward includes a licensing fee and a purchase. The nonmonetary reward can be a cross-license with a licensee’s assets. Second, SEP owners canimplement business strategies using their own SEPs. Owners can choose licensees andcontrol licensing conditions. However, restrictions exist that are attributable to the IPR
policies of standard setting organizations (SSOs), and such behaviors of owners are regarded
as anti-competitive (Farrell et al., 2007; Lemley & Shapiro, 2007). If not, owners can simply
keep SEPs as an asset that can be easily turned into cash.

2.3 International patent protection and international trade
The patent system is territorial. Accordingly, patent system protection levels are different
between patent authorities, and these differences influence international trade. When a firm
decides where to export their products and services, it must take into account the patent
system of importing countries as a condition. If a country’s patent system is weak andpracticed poorly, no exporter will export its products and services to that country knowingthat the chances are high that they will be imitated.

5In contrast, if the patent system is strong and practiced well, an exporter would not
simply increase its export to countries. Two countervailing effects occur when a patentauthority sets a strong patent system (Maskus & Penubari, 1995; Smith, 2001). One effect isthe market expansion effect, in which an exporter increases its exports to markets with astrong and well-practiced patent system. Importing countries’ strong patent systems ensure
exclusive rights over the knowledge embodied in the products and services. Because others
have no chance to imitate even if they have resources and imitation abilities, products andservices cannot enter the market without being imported. As a result, trade increases tocountries with a strong patent system. The other effect is the market power effect, in which anexporter decreases its exports to markets with a strong and well-practiced patent system.
Because no chance exists for others to imitate even if they have resources and imitation
abilities, the exporter can increase the unit price by reducing its volume of products andservices. In short, many benefits exist to exporters in foreign countries with strong and wellpracticed patent systems.
For such reasons, companies engaging in international business are motivated to apply
patents in markets that are significant for these businesses. Companies that seek to enter
foreign markets without patents will face significant risks, including risks that are much moresignificant in industries in which the patent thicket (Shapiro, 2001) is dominant. Moreover,international patent filings assist in understanding a corporate strategy (Faust & Schedl, 1983;
Mogee & Kolar, 1994).

2.4 International distribution of SEPs: the GSM caseA historical event during the GSM standardization also provides insight (Shurmer & Lea,
1995; Iversen, 1999; Bekkers et al., 2002; Gandal et al., 2003).
As previously mentioned, GSM was developed as a regional standard in Europe toachieve significant economies of scale in equipment supply and to provide roaming services.
However, when GSM systems’ technical specifications were completed, the standardizationcommittee recognized patent issues in all technical sections. Throughout the search, Motorola
turned out to be the largest holder of GSM SEPs. That fact exacerbated the problems because
Motorola refused to declare its licensing policy. Motorola gained the upper hand on crosslicensing of GSM SEPs for GSM implementation. In the end, Motorola entered into a cross6

license agreement with Alcatel, Ericsson, Nokia, and Siemens between 1990 and 1993, which
represented an early stage of GSM service. Those who could not reach agreement faced asevere disadvantage. For example, most Japanese firms preparing to enter the GSM market
could not do so for several years after GSM services were launched. As a result, a firm’s
business in the GSM market was determined by cross-licensing of GSM SEPs.
To the best of our knowledge, no study clearly provided evidence on the patentauthorities in European countries that provided protection to the GSM SEPs held by Motorola.
However, it is natural to speculate that patent family members 3 of Motorola’s GSM SEPs
were protected by at least one major patent authority in European countries and/or countries
in which incumbent players from Europe had businesses. In general, firms in the UnitedStates were aware of the significant role of patents earlier than firms in other countries and,thus, strategically used patents. Motorola sought overseas business opportunities, and unless
its GSM SEPs were protected in countries of interest, European firms had no need to crosslicense GSM SEPs

3.

Data
We retrieved the list of SEPs from the ETSI Special Report 000314 and focused on W-

CDMA and LTE, which are recognized as the most globally successful technical standards inthe mobile communications industry, and offer global services. The list of SEPs is reported in
the 25 and 36 series in the ETSI Special Report 000314, including the W-CDMA and LTE
specifications in 3GPP (3rd Generation Partnership Project). Readers must note that we
dropped those SEPs for TD-SCDMA (TS 25.221, TS 25.222, TS 25.223, TS 25.224, and TS
25.225). TD-SCDMA is known as the 3G standard of China and is deployed only in the
Chinese mobile communications market. Accordingly, by dropping the SEPs aimed at TDSCDMA, we can correctly analyze the strategies deployed by Chinese firms in global
markets.

3

In this paper, a patent family is a group of patent filings that claim the same priority of a

specific filing.
7

W-CDMA and LTE SEPs retrieved from ETSI Special Report 000314 matched thoselinked to patent data in the EPO PATSTAT patent database. One must note that the list of
SEPs is reported on the basis of declarations by SEP owners. Thus, the list may represent
over- or under-declaration (Bekkers & Updegrove, 2012). Because verification of theessentiality of SEPs requires technical expertise and no database exists that verifies “correct”
SEPs, we believe that ETSI’s database is the best one for a study such as this. Thus, we note
this issue as a limitation of this study.

4.

Findings

4.1 Number of essential patents owners by country in East Asia
The first analysis shows the SEP owners in W-CDMA and LTE. We count the number offirms that declared their SEPs in W-CDMA and LTE to ETSI, and the result is shown in
Table 1.

Table 1. W-CDMA and LTE SEP owners in East Asia
China
Huawei
ZTE

Japan
NEC
NTT DoCoMo
Panasonic
Sharp
Sony
Toshiba

Korea
LG Electronics
Samsung Electronics

TaiwanASUSTek
BenQ
HTC
Innovative Sonic

We closely investigate each country. First, Huawei and ZTE are the only SEP owners
in China. Compared with the number of firms in the telecommunications industry in China,
the fact that only two firms exist for China may be disappointing. Huawei and ZTE are
known as the two leading firms in the telecommunications industry in China. Because they
explain more than 70% of the telecommunications industry in China when measured bydelivery value of exports, gross industrial output value, and number of employed in theindustry, the result is not surprising (Kang, 2015).
Japanese firms represent the largest SEP owner group among the four countries, andJapan has six corporate groups of W-CDMA and LTE SEP owners. As of late 2016, among8the five manufacturers from Japan, some of them withdrew from cellphone and smartphone
manufacturing and decided to concentrate on network businesses. Another salient point isthat NTT DoCoMo, the leading network operator in Japan, is one of the owners. Among allof the W-CDMA and LTE SEP owners in East Asia, NTT DoCoMo is the only network
operator. NTT DoCoMo has been known as a leader in Japan’s mobile communicationsindustry (Kushida, 2011). Therefore, that NTT DoCoMo is a SEP owner is not surprising.
Korea is similar to China. Only two firms declared themselves as owners of W-CDMAand LTE SEPs. They are also the two leading firms in the telecommunications industry in
Korea. Although the number of firms may seem very small, the share of W-CDMA and LTE
SEPs owned by the two is very large (Kang et al., 2014).
Taiwan also shows differences from the other countries, and four firms declared theirownership of W-CDMA and LTE SEPs. Considering Taiwan’s population and domestic
market size, this number is quite large, possibly implying that interest in SEPs is widespreadthroughout society.

4.2 Disclosure of SEPs to the standard setting organization
SEPs are known through their owners’ declarations because quite a few SSOs require
firms to indicate a list of patents that would be infringed on by standard implementers. This
subsection shows the frequency and number of SEP declarations made since 3GPP wasformed. In no case were any of the declarations from Chinese, Japanese, and Korean firms
made before 2002. The analysis in this subsection provides information regarding the identityof the key player, possible risks behind declarations, and other points.
Table 2 indicates the result regarding the number of disclosure events. A disclosure event
refers to a SEP declaration from potential owners to a given SSO on a given date. A
disclosure event may include multiple patents. For each year of the original disclosurestatement submitted to ETSI, we calculated the number of disclosure events to ETSI
regarding W-CDMA and LTE SEPs. Table 3 indicates the number of SEPs that were
declared each year in Table 2.
Chinese firms made their first declaration of W-CDMA and LTE SEPs to ETSI in 2005.
Since then, Chinese firms declared their SEPs every year. One outstanding feature is that the
number of disclosure events increased in the late 2000s. Moreover, the number of declared
9

SEPs also began to increase in 2009 (Table 3), implying that Huawei and ZTE realized theimportance of owning SEPs around 2010.
In 2004, Japanese firms made their first declaration of W-CDMA and LTE SEPs to ETSI.
In the first half of the 2000s, although a large variation existed in the number of declared
SEPs each year, Japanese firms constantly declared their potential SEPs. This fact implies
that their participation in the 3GPP standardization has been constant for the last decade.
Korean firms made their first declaration of W-CDMA and LTE SEPs to ETSI in 2003.
From the early stage of declaration, the number of SEPs declared was large. After two years
of no SEP declarations, those firms resumed their declarations and, since 2006, have declared
their SEPs every year. The total number of SEPs declared from Korean firms is the largest
among the four countries.
Taiwanese firms made their first declaration of W-CDMA and LTE SEPs to ETSI in
2002, earlier than any other firm in East Asia. They consistently made declarations between
2001 and 2005. One difference from the Chinese, Japanese, and Korean firms is that the
number of declared SEPs from Taiwanese firms is the smallest in our observation. In addition,
after 2005, no SEP declarations were made except in 2007 and 2011. This finding implies
that Taiwanese firms’ participation in 3GPP became less active than before.

Table 2. Number of disclosure events to ETSI per year
China
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

1
1
1
1
3
5
5

Total

17

Japan

2
1
2

Korea

Taiwan

1
1

2
1
1
2

1
4
7
7

2
1
4
8
9
6

24

32

Table 3. Number of SEPs declared to ETSI per year
10

1

2
9

China
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

46
108
22
29
101
330
253

Total

889

Japan

356
1
573

Korea

Taiwan

595
286

135
2
5
114

228
1873
1414
1264

553
120
970
2805
840
964

360

5709

7133

634

18

4.3 Geographical protection of essential patents owned by East Asian firms
This subsection indicates how their SEPs counted in the previous section (Table 2 andTable 3) are protected from a geographical point of view. Because patents are territorial, SEP
owners cannot claim their ownerships over SEPs in countries in which the owners did not filetheir SEPs. Accordingly, SEPs must be filed with the patent authorities that applicantsconsider as being in important markets. For this reason, analyzing geographical protection
will assist in understanding the countries that are considered significant (or not significant)for SEP owners.
Meanwhile, according to ETSI’s IPR policy, SEP owners are obliged to disclose one
member of a patent family (ETSI, 2013). Disclosure of other patent family members is
voluntary. Accordingly, we are unable to find all patent family members for each SEP fromETSI Special Report 000314. Therefore, we found all patent family members of each SEP bymatching each SEP to the patent data in the EPO PATSTAT patent database using thedefinition of the DOCDB. 4 Table 4 shows the result.

Table 4. Patent authorities for which W-CDMA and LTE SEPs are protected by East Asianfirms
4

Several approaches exist to defining a patent family. For the benefits and challenges

related to DOCDB and INPADOC patent families, see WIPO (2013).
11

China

Japan

Korea

TaiwanAsia:
CN, HK, JP, KR

Asia:
CN, HK, ID, JP, KR,
MY, SG, TW

Asia:
CN, HK, IN, ID, JP,
KR, MY, SG

Asia:
CN, JP, KR, TW

EuropeAT, DE, DK, ES,
FI, PT

EuropeAT, CZ, DE, DK, ES,
FR, NO, PL, PT, SE,
UK

EuropeAT, DE, DK, CY, ES,
FI, FR, IT, PL, PT,
SE, SI, UA, UK

EuropeAT, DE, ES,

North America:
CA, US

North America:
CA, US

North America:
CA, US

North America:
US

Others:AU, BR, MX, RU

Others:Others:AU, BR, MX, RU, ZA AR, AU, BR, IL, MA,
MX, RU, ZA

Others:AU

As was done in prior subsections, we again closely investigate each country. SEPs
owned by owners from China are protected in 16 authorities. They are patent authorities ineither high-income economies or major emerging economies. This finding implies that
Chinese firms consider high-income and major emerging economies as significant markets
for their global businesses. However, evidence has shown that China’s standard strategy is toconcentrate on their own standards, which are primarily aimed at domestic markets, rather
than follow global standards (Lee & Huh, 2012; Kang et al., 2014). In this sense, the risk
might be small as far as Chinese firms playing on top of China standards. Protecting SEPs in
not enough patent authorities appears risky when Chinese SEP owners attempt to expand
their international businesses to other middle-income economies. Especially now, asignificant possibility exists that China will not have its own 5G standard and the market will
be completely globalized. Hence, the risk might be more significant than before for Chinese
firms.
SEPs owned by owners from Japan are protected in 26 patent authorities. Patentauthorities for which their SEPs are filed are mostly in high-income economies. 5 Among the
26 economies are five non-high-income economies: Brazil, China, Mexico, Russia, and South5

For an overview of the classification of countries by income level, see Felipe et al. (2012),

who re-classified using the definition of the World Bank and their own calculation.
12

Africa. Of the five non-high-income economies, four (Brazil, China, Russia, and South
Africa) are well recognized as BRICS countries and major emerging middle-income
economies. From this finding, we can assume that SEP owners in Japan consider highincome economies and major emerging economies for their market size.
Meanwhile, SEPs owned by firms from Korea are protected in 32 patent authorities.
They file their SEPs not only in high-income economies but also in five upper-middleincome economies (Malaysia, Mexico, Poland, Russia, and South Africa) and five lowermiddle-income economies (Brazil, India, Indonesia, Morocco, and Ukraine). In other words,
both developed and developing economies are important markets for Korean firms. Korean
firms and the government in the 1960s were considered a typical example of having anexport-oriented attitude (World Bank, 1993) and were famous for their awareness of overseas
markets (Kim, 1997). That finding in Table 4 implies that Korean firms’ export-oriented
attitude appears even during the standardization process. In Table 4, their export-oriented
tendency appears to be the most outstanding among the four East Asian countries.
Lastly, SEPs owned by owners from Taiwan are protected in nine patent authorities thatare in only high-income economies. Even if Taiwanese firms are also known for their exportoriented economy, we assume that their interest is very much focused on high-income
economies.

4.4 East Asian firms’ international protection of SEPs
As previously argued, SEPs are protected globally and strategically. How is East Asianfirms’ international protection of SEPs? To address this question, we constructed a dataset of
all SEPs applied to the USPTO. The observation size is 3,975, which is smaller than the sumof Table 3 because the same patents applied to different patent authorities are declaredindividually when declared. However, in the regression analysis, we used only SEPs applied
to the USPTO.
We use patent data applied to the USPTO because of the significance of the U.S. market
in international business. Patent applications are subject to the tradeoff between dominanceand cost. Because of the U.S. market’s global significance, companies doing international
business apply for patents in the United States and accept the high cost.

13

We constructed a negative binomial regression because the dependent variable is acount number: 1 subtracted from the number of patent authorities to which a SEP is applied.
By subtracting 1, patent applications filed in only one patent authority is set to 0. We
calculated this variable using the DOCDB patent family. The independent variables are four
national dummy variables: China, Japan, Korea, and Taiwan. Accordingly, the baseline inthis regression model is non-East Asia, i.e.,., Canada, Europe, and the United States, and we
add control variables to the regression analysis. The first control variable is normalized
forward citations, which is added as a proxy for a patent’s technological value. We presume
that technologically important SEPs are protected by more countries than less important SEPs.
This variable is obtained by dividing the number of forward citations by the average numberof forward citations from the same application year and international patent classification(IPC) (Jaffe & Trajtenberg, 2002). 6 We use only U.S. patent citations when measuring thenumber of forward citations. The number of forward citations increases if an applicant of aforward citation files patent family members in more than one country, and the chances arehigher that a patent will receive more citations from each of the patent family members.
Using U.S.-to-U.S. citation analysis allows such an adverse causality to be avoided. The
second control variable is the logarithm of the total patent stock of the applicant. Thisvariable is added as the size of the applicant. We presume that firms with a large patentportfolio tend to file their patents internationally. The third control variable is a priorapplication year dummy. The value of the year dummy is set to 1 according to the priorapplication year of each patent application.
Table 5 shows the results, including coefficients and t-statistics. The four countries(China, Japan, Korea, and Taiwan) have negative effects and negative statistical significanceat the 1% level in all regression models. This result indicates that their SEPs are less likely tobe protected internationally compared with firms from Canada, Europe, and the United States.
Comparison of the coefficients between the four countries implies that SEPs held by Chinese
firms are the least protected internationally and those held by Japanese firms are more
protected internationally. In addition, all control variables showed the result we presumed.
6

Old patents are probably cited more frequently than recent patents, which become a bias inpatent citation analysis. Normalization is necessary to eradicate such a bias.
14

That is, inventions with better technological value and that were invented by larger firms tend
to be protected in a larger number of patent authorities.

Table 5 Regression result(DV: 1 subtracted from the number of patent authorities to which a SEP is applied)

CN
JP
KR
TW
Normalized forward citations
Log(Patent stock of applicant)Application Year
ConstantN* p<0.1, ** p<0.05, *** p<0.01

12
3
4−0.5999−0.5838−0.6423−0.6256[−5.45]*** [−5.30]*** [−5.74]*** [−5.59]***−0.2864−0.2765−0.3103−0.3[−7.98]*** [−7.68]*** [−8.24]*** [−7.94]***−0.4094−0.4022−0.4626−0.4546[−12.61]*** [−1237]*** [−11.21]*** [−11.00]***−0.5007−0.4922−0.4481−0.4406[−4.30]*** [−4.23]*** [−3.77]*** [−3.71]***0.00840.0084[2.85]***[2.82]***
0.02270.0224[2.10]**[2.06]**
NoNo

2.05072.032[128.83]*** [118.71]***
3975
3975

5
−0.6383[−5.70]***−0.298[−7.83]***−0.4614[−11.17]***−0.4409[−3.70]***0.0076[2.54]***
0.023[2.09]**

No

No

Yes

1.8657[20.84]***3975

1.8501[20.60]***3975

1.9608[13.87]***3975

The following figures provide a better sense of the regression analysis. The figuresindicate the average number of patent authorities for which W-CDMA and LTE SEPs areprotected by firms in each region. The calculation is done by taking the average of thenumber of patent authorities with which each firm in each country filed their SEPs andfurther taking the average of each firm’s value. For example, the bar in 1993 in Figure 1
implies that a firm in Japan filed its SEPs in an average of 12 patent authorities. Figures 1 and2 show the case of East Asian countries, whereas Figure 3 shows the case of the United Statesand Europe as references. 7 The horizontal axis represents the application year.

7

The case of Canada is not shown for brevity. However, the data can be provided on request.
15

In Figure 1, China’s average number of patent authorities varies between 4.4 and 8,
whereas Japan’s average ranges from 3.7 to 12. Japan’s case shows that value modestly
increases over time, which is not observed in China’s case. It can be presumed thatrecognition regarding the importance of international SEP protection increased in firms inJapan.
In Figure 2, Korea’s average number of patent authorities varies between 1 and 8.4,
whereas Taiwan’s average number ranges from 3.3 to 7.8. Korea shows an increase until
2002 and then a subsequent decrease. In contrast, Taiwan shows a trend similar to Japan.
In Figure 3, the average number of patent authorities for the United States varies between
4.7 and 14, whereas Europe’s average number ranges from 3 to 10.3. Figure 3 does not show
any apparent trend—no evident increase or decrease. Rather, salient ups and downs areshown. Nonetheless, the values of the United States and Europe are larger than the values ofany of the four East Asian countries. Perhaps the importance of international SEP protection
is much better recognized by firms from the United States and Europe.

14
CN

12

JP

10
8
6
4
2

2011

2010

2009

2008

2007

2006

2005

2003

2004

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

0

Figure 1. Average number of patent authorities for which SEPs are protected: China and
Japan

16

14
KR

12

TW

10
8
6
4
2

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

0

Figure 2. Average number of patent authorities for which SEPs are protected: Korea andTaiwan

14
US

12

EU

10
8
6
4
2

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

0

Figure 3. Average number of patent authorities for which SEPs are protected: United Statesand Europe

17

5.

Discussion
The findings are summarized and further discussed in this section. First, the protection

strategy of W-CDMA and LTE SEPs by East Asian firms is different among countries, which
can be summarized as follows.

(1) China: As found by other studies, Chinese firms’ have actively participated in global
standardization, as have Japan and Korea recently. However, their SEP protections areconcentrated only in developed countries and major developing countries, such as someof the BRICS.
(2) Japan: Japanese firms’ participation in global standardization is the most constant. The
number of Japanese firms that have ever had W-CDMA and LTE SEPs is the largest
among the four East Asian countries. The protection of their W-CDMA and LTE SEPs
are concentrated in high-income economies.
(3) Korea: Korean firms have their SEPs in many countries from high-income to middleincome economies. In addition, the number of declared SEPs is largest among the four
countries.
(4) Taiwan: What was outstanding was the number of firms that own SEPs. Compared with
Chinese and Korean companies, more Taiwanese companies own SEPs and some ofthem are non-manufacturers. However, their declaration has become less inactive in thelate 2000s than in the early 2000s. As seen in Japan, Taiwanese firms’ protection of their
W-CDMA and LTE SEPs are also concentrated in high-income economies.

Second, our regression analysis showed that SEPs owned by East Asian firms tend to beprotected in fewer countries after controlling for the determinants of the global protection of
SEPs.
Our findings provide several implications, including implications for each country basedon the previously described findings, as follows.

(1) China: Chinese firms will face difficulty operating their businesses globally, especially indeveloping countries. Domestic firms that have businesses on China’s own standard will
face two challenges. First, they will generate additional costs to operate businesses on the18

global standard. As discussed in other studies, China’s focus has been in setting its own
standard rather than following the global standard (Lee & Huh, 2012; Kang et al., 2014).
The costs to accrue different technological knowledge and to construct supply channels
regarding the global standard must be paid. Second, even if China pays such costs, it will
not be easy operating a business in countries in which only rivals have relevant SEPs andit does not. In this situation, China will always face infringement issues with rivals.
(2) Japan: The fact that Japanese firms own W-CDMA and LTE SEPs implies that manysuch firms are much more aware of the value of SEPs. Their global business in themobile communications industry was concentrated in developed countries. In this sense,
they were going to have difficulty doing business in developing countries. However, as
mentioned in Section 4.1, many of them withdrew their cellphone and smartphonebusinesses. Thus, the question remains as to how the W-CDMA and LTE SEP owners
use their SEPs after shutting down their businesses in the mobile communicationsindustry. If their SEPs are sold to any third party, is the new buyer willing to license the
SEPs in the fair, reasonable, and non-discriminatory (FRAND) way?
(3) Korea: The country’s SEP protection behaviors imply that its business interest is global,
from high-income economies to numerous middle-income economies. Among the four
countries, Korean firms are most active in owning SEPs, which implies that they
consider SEPs an important asset for their business. Their protection behavior can be amodel for following firms that consider operating a business in a standard-based industry.
A remaining issue is how well the patent system is effectively practiced in developing
countries.
(4) Taiwan: The number of Taiwanese firms that own SEPs implies that their interest in
SEPs is widespread in society compared with China and Korea. However, their interest
in SEPs has become much less than before. Therefore, as questioned in the case of Japan,
an issue remains as to how W-CDMA and LTE SEP owners use their SEPs.

Three implications exist for companies that operate businesses internationally. First,
SEPs have the potential to function as a trade barrier. Knowing the countries in which SEPs
in interested standards are protected is very important because such knowledge hints at an19

understanding of rivals’ international business strategies and the countries that represent
opportunities for, or threats to, exporting.
Second, as our regression analysis shows, technologically advanced SEPs are more likely
to be protected in many patent authorities. If a SEP is filed not only in major markets but also
in minor markets, the SEP is likely to contain technologically advanced inventions.
Accordingly, there is almost no chance that the SEP can be invalidated during patent lawsuits.
This study analyzed SEPs in only two standards: the representative 3G and 4G standards inthe mobile communications industry. Other standards exist in the same industry, as do a large
number of other standards if we count other industries. One must pay attention to the global
distribution of SEPs in relevant standards.
Third, the next implication is the significance of the strategic ownership and protectionof SEPs for non-SEP owners. As shown in this study, SEPs are protected globally. A numberof prior studies discussed the FRAND license and proposed amendments and alternative
methods (Lemley, 2002; Chiao et al., 2007; Farrell et al., 2007). However, nothing has beenachieved in actuality because the FRAND royalty cannot be calculated or verified
theoretically. Additionally, this royalty cannot be calculated before or after market formation,and the FRAND way depends on the situation and varies on a case-by-case basis, and so on.
In other words, no universally practical licensing policy exists that non-SEP owners can
expect from administrative organizations. In this situation, the minimum preparation is tobecome a SEP holder by participating in standardization or by purchasing. By doing so, one
can demand reciprocity in licensing with existing SEP holders.

6.

Conclusion
This study investigated how W-CDMA and LTE SEPs owned by East Asian companies

are protected globally. We showed that the protection strategy of these SEPs is different
between countries within East Asia. We further tested the tendency of East Asian firms’international SEP protection and discussed the protection strategies of W-CDMA and LTE
SEP holders by East Asian firms.
The limitations to this analysis should be noted. First, this paper used only the case of
SEPs in W-CDMA and LTE standards as typical in the mobile communications industry. The
20

distribution of SEPs must be much more complex considering that SEPs exist in otherstandards in the other industries, and the IPR policy of a SEP is defined in different ways.
Thus, the applicability of the findings to other studies remains an unsolved issue. Second, thedata used in this study may not represent all SEPs. SEPs are known through declarations by
their owners. Accordingly, there might be SEPs that are not declared. In addition, SEPs are a
tradable asset and can be transferred to third parties that are not members of SSOs. For thirdparty SEP owners, declaring a SEP is not an obligation. For instance, ETSI’s obligation to
inform about SEPs is applied only to its members and not to third parties (ETSI, 2013).
Accordingly, other third parties may have undeclared SEPs that can function as a tradebarrier.

Reference
Adachi, F. (2001) Wireless Past and Future – Evolving Mobile Communications Systems,
IEICE Transactions on Fundamentals E84 – A(1), 55 – 60.
Amsden, A.H., & Chu, W.-W. (2003) Beyond Late Development: Taiwan’s Upgrading
Policies. The MIT Press, Cambridge.
Bekkers, R., Verspagen, B., & Smits, J. (2002) Intellectual property rights andstandardization: the case of GSM, Telecommunications Policy 26, 171 – 188.
Bekkers, R., Bongard, R., & Nuvolari, A. (2011) An empirical study on the determinants ofessential IPR claims in compatibility standards, Research Policy 40, 1001 – 1015.
Bekkers, R., & Updegrove, A. (2012b). A study of IPR policies and practices of arepresentative group of Standards Setting Organizations worldwide. National
Academies of Science, Washington DC.
Chiao, B., Lerner, J., & Tirole, J. (2007) The rules of standard-setting organizations: anempirical analysis, RAND Journal of Economics 38(4), 905-930.
Dahlman, E., Parkvall, S., Skold, J., & Beming, P. (2008) 3G Evolution: HSPA and LTE for
Mobile Broadband (2nd edition), Academic Press, Oxford.
ETSI (2013) ETSI Guide on Intellectual Property Rights (IPRs). ETSI Directives Version 35,
December 2015, http://www.etsi.org/images/files/IPR/etsi-guide-on-ipr.pdf (RetrievedApril 22nd, 2016)21

Farrell, J., Hayes, J., Shapiro, C., & Sullivan, T. (2007) Standard setting, patents, and hold-up,
Antitrust Law Journal 74(3), 603 – 670.
Faust, K., & Schedl, H. (1983) International patent data: Their utilization for the analysis oftechnological developments, World Patent Information 5(3), 144 – 157.
Felipe, J., Abdon, A., & Kumar, U. (2012) Tracking the middle-income trap: What is it, who
is in it, and why?, Levy Economics Institute, Working Paper No. 715.
Freeman, C. (1987) Technology Policy and Economic Performance: Lessons from Japan.
Pinter Publishers, London.
Gandal, N., Salant, D., & Waverman, L. (2003) Standards in wireless telephone networks,
Telecommunications Policy 27, 325 – 332.
Iversen, E.J. (1999) Standardization and intellectual property rights: conflicts between
innovation and diffusion in new telecommunication systems. In: Jakobs, K. (Eds.),
Information technology standards and standardization: a global perspective (pp. 80 –
101). IGI Global, Hershey.
Jaffe, A.B., & Trajtenberg, M. (Eds.) (2002) Patents, citations & innovations: A window on
the knowledge economy. The MIT Press, Cambridge.
Kang, B., Huo, D., & Motohashi, K. (2014) Comparison of Chinese and Korean companies in
ICT global standardization: Essential patent analysis, Telecommunications Policy 38,
902 – 913.
Kang, B. (2015) The innovation process of Huawei and ZTE: Patent data analysis, China
Economic Review 36, 378 – 393.
Kang, B., & Bekkers, R. (2015) Just-in-time patents and the development of standards,
Research Policy 44, 1948 – 1961.
Kang, B., & Motohashi, K. (2015) Essential intellectual property rights and inventors’
involvement in standardization, Research Policy 44, 482 – 492.
Kim, L. (1997) Imitation to Innovation: The Dynamics of Korea’s Technological Learning.
Harvard Business School Press, Boston.
Kushida, K.E. (2011) Leading without followers: How politics and market dynamics trapped
innovations in Japan’s domestic “Galapagos” telecommunications sector, Journal ofIndustry, Competition and Trade 11(3), 279 – 307.
Lee, H., & Huh, J. (2012) Korea’s strategies for ICT standards internationalization: a22comparison with China’s, International Journal of IT Standards and Standardization
Research 10(2), 1 – 13.
Leiponen, A.E. (2008) Competing through cooperation: standard-setting in wirelesstelecommunications, Management Science 54(11), 1904 – 1919.
Lemley, M.A. (2002) Intellectual property rights and standard-setting organizations.
California Law Review 90(6), 1889-1980.
Lemley, M.A., & Shapiro, C. (2007) Patent holdup and royalty stacking, Texas Law Review
85, 1991 – 2049.
Maskus, K.E., & Penubarti, M. (1995) How trade-related are intellectual property rights?,
Journal of International Economics 39, 227 – 248.
Mogee, M.E., & Kolar, R.G. (1994) International patent analysis as a tool for corporate
technology analysis and planning, Technology Analysis & Strategic Management 6(4),
485 – 503.
Rysman, M., & Simcoe, T. (2008) Patents and the performance of voluntary standard-settingorganizations, Management Science 54(11), 1920 – 1934.
Shapiro, C., & Varian, H.R. (1999) Information Rules: A Strategic Guide to the Network
Economy. Harvard Business Review Press, Boston.
Shapiro, C. (2001). Navigating the patent thicket: Cross licenses, patent pools, and standard
setting. In: Innovation Policy and the Economy, Volume 1 (pp. 119 – 150). The MITpress, Cambridge.
Shurmer, M., & Lea, G. (1995) Telecommunications standardization and intellectual property
rights: A fundamental dilemma?, StandardView 3(2), 50 – 59.
Smith, P.J. (2001) How do foreign patent rights affect U.S. exports, affiliate sales, andlicenses?, Journal of International Economics 55, 411 – 439.
WIPO (2013) Handbook on industrial property information and documentation. Available at
http://www.wipo.int/standards/en/, 2013.
World Bank (1993) The East Asian Miracle: Economic Growth and Public Policy. Oxford
University Press, New York.

23

Appendix: Overview of correlations between variables in regression of Table 5
v1

v2

v3

v4

v5

CN

1

JP

-0.05361KR-0.064-0.22421TW-0.0142-0.0499-0.0595

1

Normalized forward citations-0.0394-0.0664-0.0571-0.0118

1

Log(Patent stock of applicant)

0.097

0.1432

0.5632-0.1997-0.054724

v61