Presentation delivered during 9th Seminar on Media and the Digital Economy (21-22 March 2019, Florence). http://fsr.eui.eu/event/annual-scientific-seminar-on-media-and-the-digital-economy-9th-edition/

1. Annual Scientific Seminar on Media and the Digital Economy
SSOs as Optimal Innovation Platforms?
Advantages and Drawbacks
Prof Pier Luigi Parcu
European University Institute
Florence, 21 March 2019

2. This paper has three aims:
1. to sketch, using the paradigm of platforms,
the principal ideal types used in the economy
for organising innovation
2. to identify important categories for comparing
the advantages and drawbacks for each of
these ideal types
3. to apply these categories to SSOs and to
their evolution
SSOs as Optimal Innovation Platforms?
Advantages and Drawbacks

3. I. Intro
II. Platforms as models for organising
innovation
III. Standardisation process and Standard-
Setting Organisations
IV. Three dimensions of analysis and
comparison
- Quality of innovation
- Efficiency of innovation pricing
- Market power and competition enforcement
V. Conclusion
Structure of the paper

4. Economic literature on platforms
(Rochet & Tirole 2004), platforms as
types of markets: this underlines
pricing strategies can solve the
crucial problem of getting different
groups of customers (or sides of the
market) on board
Engineering literature on platforms (Gawer 2014), platforms =
technological architectures: this has underlined modularity as
the key feature enabling a division of innovative labour between a
stable core of the system (sometimes the platform itself) and its
periphery.
The concept of platform

5. Our approach: Platforms as models for organising innovation
• Attempting to connect these two strands of literature we
approach the problem of the organization of innovation as a
typical platform problem and we interpret SSOs as
innovation platforms.
• SSOs are defined as meta-organisations sitting between two
sides: (i) the technology contributors, and (ii) the standard
implementers
• As for all dual (or multi) -sided platforms, reaching the right
balance between the prices across the sides of the platform
is crucial: these “prices” are the policies that determine the
costs of and incentives to participation
• For SSOs “modularity” is the essence of their activity, as
innovation is a cooperative super/modular result

6. Standardisation process and Standard setting
organisations
• The primary objective of standardisation is the definition of
voluntary, technical or quality specifications with which
current or future products, production processes or
services may comply
• Crucial distinctions: compatibility (PDF) vs safety/quality
standards (ISO families); de facto (QWERTY keyboard) vs
de iure standards (LTE)
• Compatibility standards play a key role in the present
hyper-connected era: these standards are created,
maintained and diffused in a complex ecosystem

7. Internal
platform
SSOs Silos OSS
Core value Hierarchy Negotiation Leadership Collaboration
Coordination
mechanism
Command &
control
Consensus Dominance Decentralization
Standardisation De facto De iure De facto De facto
Interoperability
Vertical Horizontal Vertical
Might or might
not be assured
Advantages vs
disadvantages of
coordination
mechanism
Efficiency vs
limiting
incentives to
innovation
Technical
quality and
stability vs
lengthy process
Speed vs lock-in
Free
modification and
distribution
vs instability
Competition
implication Traditional
SEPs and
agreements
issues
Winner takes all
dynamics
None
There are 4 ideal type of platform-based organisational
models of innovation

8. Three dimensions of analysis and comparison:
quality of innovation
• Direct evidences on technology choices generally confirm
that SSOs select “good-quality” innovations. A crucial
determinant, in this respect, is wide participation
• A related issue is whether SSOs enable or constrain
innovation: evidence seems to support that SSOs
encourage knowledge diffusion
• Innovation in SSOs may be slowed by complex
coordination process: there is a clear trade-off between
high-quality outcomes and time, which however is affected
by the rules adopted by SSOs and, hence, in principle, can
be managed.

9. Taxonomy of SSOs (adapted from Biddle 2017)

10. Three dimensions of analysis and comparison:
efficiency of (innovation) pricing
• In any kind of platform, the adequate pricing of the product
or service involved for the different participating groups is a
key ingredient for success
• SSOs generally adopt some form of FRAND or F/RAND
licensing, asking members to commit to license any essential
patent on fair, reasonable, and non-discriminatory terms
• In principle, FRAND terms make the technology
encompassed by the standard available to all potential
implementers and innovators rewarded and encouraged to
continue investing in R&D activities
• A decisive issue, however, is linked to the identification
of the level that would qualify royalties as FRAND

11. • Interpret FRAND as an access obligation and use an
Efficient Component Pricing Rule (ECPR) tool to fix the
access price
• Interpret standardization as a cooperative game and, thus,
price royalties using a fair apportion instrument, like the
Shapley value. But solutions that reward participation are
difficult in the context of royalties for licensed technologies
• Any economic-based strategy, to limit litigation, should be
able to adjust the royalty to the ex-post market results of
the standard and of the technology
• Introducing corrections in the FRAND agreements, to
render the contract more complete, is a major topic for
future research
Two possible solutions prospected by economists

12. Three dimensions of analysis and comparison:
market power
The tension between IP rights and competition law is more
challenging for standards. Once a standard has been
selected, an industry has committed itself, investments are
sunk, implementers are locked-in both into the standard
and the relevant SEPs, with the risk of conferring significant
market power to SEPs’ holders

13. • First, standardization involves by its very nature competitors
sitting around a table agreeing on selecting a particular
technology for common adoption, instead of letting market
forces decide which technology should prevail
• Second, deceptive behaviors (patent ambush), which take
place when a company hides the fact that it holds essential
IPRs over the standard to be developed and asserts them
only at a later stage
• Third, in some circumstances, SEPs may be seen as an
‘essential facility’. Opportunistic SEPs holders may ‘hold-
up’ standard implementers by refusing to license the
necessary SEP or imposing royalties at an exploitative
level

14. Quality: openess and super/modularity remain
the strong advantage of SSOs respect to other
platforms
Pricing: the problem of FRAND is that the
contract remains largely incomplete to provide
an efficient solution
Market power: competition issues for SSOs and
SEPs appear less serious compared with the
quasi-monopoly that Silos have imposed in many
segments of the digital markets
Three dimensions of analysis and comparison:
summary

15. • SSOs are an important way to organize, pricing,
and controlling the market power stemming
from innovation
• Compatibility requirements of 5G and IoT are in
their favor and issue of standardization of
GPTs, like Big Data or AI, are becoming
decisive for the future
• But if the SSOs model can resist the Silos
market power is an open question and a topic
for future research
Conclusion

16. Thanks!
Comments welcome
Pierluigi.Parcu@eui.eu