Galetovic A. (2018).
Hedonic Prices, Patent Royalties, and the Theory of Value and Distribution: A Comment on Sidak and Skog. The Criterion Journal of Innovation, Volume 3, pp. 59-70.
In Hedonic Prices and Patent Royalties, J. Gregory Sidak and Jeremy O. Skog use a hedonic regression to estimate the incremental cumulative value of a bundle of standard-essential patents (SEPs) that define Joint Electron Devices Engineering Council’s (JEDEC’s) load-reduced dual-inline memory module (LRDIMM) standard. They then apportion the estimated cumulative value pro rata to the adjusted number of forward citations received by each SEP The motivation for the Sidak-Skog hedonic regression analysis is to answer a practical question that courts have been asked several times: How much can a patent holder charge for an SEP that it has agreed to license on fair, reasonable, and nondiscriminatory (FRAND) terms? In some cases, a court must act when implementer I sues patent holder H claiming that H violated its FRAND commitment by overcharging for its SEPs. In other cases, patent holder H sues implementer I claiming that I has infringed H’s patents. In both cases, the court must determine the FRAND royalty that H may charge. Behind any valuation and apportionment exercise lies an underlying theory of value and distribution – a theory that explains where the value of the patents comes from and how that value is, or should be, distributed among consumers and the owners of the factors of production. This comment therefore asks: What is the theory of value and distribution underlying Sidak’s and Skog’s method?