Licensing standard-essential patents in artificial intelligence-based apps: A theory on dynamic royalty pricing mechanism

Abstract

Standard-essential patents (SEPs) are patents that are deemed essential to a specific technology standard, such as those used in wireless communication technologies. With the increased use of artificial intelligence (AI) and machine learning in a variety of applications, there is a greater demand for SEPs in the field of AI-based apps. However, licencing SEPs can be a complicated process, and there is no agreement on best practises for SEP licencing in AI-based apps. The adoption of a multifactor approach for determining FRAND royalty rates, the use of ex ante licencing to prevent patent hold-up, and the establishment of specialized dispute resolution mechanisms for SEP disputes are some of the proposed best practices for SEP licencing in AI-based apps. As potential solutions to the challenges associated with determining FRAND royalty rates in AI-based apps, this study proposed alternative royalty schemes, such as the use of a per-unit royalty rate or a revenue-sharing scheme.