Theory of Intellectual Property Bundle: An Explanation for the Success of Collective Rights Organizations

Collective rights Organizations are highly successful organizational systems for IT standard setting. However, it is not clear what advantages do these forms of organizations offer over the traditional approaches to standard-setting. We develop a theory of intellectual property (IP) bundle to explain the emergence of collective rights organizations. The theory states that, to develop an IT standard, requires unavoidable complementary transactions, of bundles of IP, between the standards developer and the IP owners. As a result there are transaction costs associated with the IT standard setting. The transactions can be organized in several different ways giving rise to different organizational forms. Different organizational forms manage these costs differently. We find that when standards are viewed as a bundle of complementary intellectual property, the collective rights organizations economize on transaction costs relative to other forms of organizations. To support our arguments, we collect data from two sources. First we study the IP policies of various organizations and some IP licensing contracts of major firms. Then we interview 3 key informants (Andrew Updegrove, Attorney, Gesmer Updegrove LLP, Jan van den Beld, Secretary General, ECMA, and Aaron Clements, Patents Attorney) engaged in making IP policies of consortiums and of proprietary firms. The data broadly supports our arguments about the superiority of Collective Rights Organizations over the traditional methods of standard setting under the intellectual property regime.