1. Technological Discontinuities and Dominant Designs: A Cyclical Model of Technological Change (Anderson & Tushman, 1990) Olga Jemeljanova Joona Kanerva Niko Kuki Mikko Nummela Group 10 26.1.2016

2. Question ”Discuss interrelations between patents and industry standards. How can patents have an influence on setting of industry standards?”

3. Outline Technology cycle (ferment, variation, selection) Definition: patent, industry standard Interrelations between patents and industry standards Examples Conclusion

4. Industry standard (Dominant design) A single architecture that establishes dominance in a product class Emerges in several ways: –De facto (users prefer one design over others) –De jure (officially endorsed for a given application) –A dominant producer sets standard –A powerful user sets standard –Industry committee establishes standard –Alliance is formed around a standard –Government regulations

5. Technology cycle TIME Era of Ferment Era of Incremental Change Technological Discontinuity 1 Dominant Design Technological Discontinuity 2 Several different technologies Design competition One dominant design

6. Regime vs. Patent Regime of appropriability refers to the environmental factors that govern innovator's ability to capture profits generated by an innovation.

7. Prerequisite for an industry standard

8. Patents and standards Patents provide incentives for R&D, and facilitate knowledge transfers. Industry standards ensure the rapid diffusion of technologies and the interoperability between products. “– when patents are not a significant factor, a technological discontinuity is generally followed by a single standard.” (Anderson & Tushman, 1990)

9. Interrelations between patents and industry standards Standard-essential patent –Patent that is essential for its industry standard Important implications –Patents work as incentives to invest in innovation –Standards benefit the economy at large of a wide diffusion of knowledge SSOs require that the license must be granted under FRAND terms Problems with licensing standard-essential patents –Information problems –Market power –Free-riding

10. Hypothesis 3 (Anderson & Tushman, 1990) “Hypothesis 3: In regimes of low appropriability, a single dominant design will emerge following each technological discontinuity.” (Anderson & Tushman, 1990)

11. Example: Mobile phone industrial design Weak regime of appropriability –Hard to protect by patents –Easy to imitate Convergence to de facto standard –All screen rectangular front –Touchscreen

12. Example: Mobile network technology Strong regime of appropriability –Patentable advancements in technology Government led standard setting organizations (e.g. European Telecommunication Standards Institute) –Industry inventions (patents) combined for de jure standards –Reasonable and non- discriminatory licensing (RAND) required for standard essential patents (SEP) $

13. Conclusion Weak regime of appropriability De facto standards emerge Patents are weak –Challenged in court –Invented around Strong regime of appropriability De jure standards established –Ensure access to patented innovations –Incentivize innovation through royalties Patents are strong –Protect new products from imitators for a time (e.g. pharmaceuticals) –Not of great value if not adopted to a standard (e.g. telecom) Potential for patent misuse –“Patent trolls” –FRAND terms to preempt in standards

14. References Anderson, S. & Tushman, M. (1990). Technological Discontinuities and Dominant Designs: A Cyclical Model of Technological Change. Administrive Science Quarterly, Vol. 35, No. 4, pp. 604-633. Teece, D. (1986). Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy. Elsevier Science Publishers B.V. (North-Holland), June 1986, pp. 285-305. Lerner, J. & Tirole, J. (2013). Standard-Essential Patents. Harvard Business School. Available from: http://www.hbs.edu/faculty/Publication%20Files/14-038_c030ca39- 5339-4447-b952-8132110260bf.pdf. [Accessed on 24 January 2016]. European Commission. (2015). Patents and Standards. European Commission. Available from: http://ec.europa.eu/growth/industry/intellectual- property/patents/standards/index_en.htm. [Accessed on 24 January 2016].