There are four main types of licensing systems that could be optimal for standard-essential patents (SEPs) in the 5G and Internet of Things (IoT) era. The optimal system for a particular SEP may depend on: (1) the contribution of the SEP to the end-user products; (2) the need for price discrimination in the IoT market; and (3) the transaction costs at different levels of the supply chain. However, the strict application of the patent exhaustion and value apportionment doctrines can drive SEP licensors and licensees to a sub-optimal licensing system from a social welfare perspective. In order to encourage the adoption of optimal licensing systems, both the exhaustion and apportionment rules need to be applied with more flexibility.
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