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.