An Economic Interpretation of FRAND

Dennis W. Carlton

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Allan Shampine

Compass Lexecon

April 24, 2013

Standard setting organizations have for many years required members to commit to license patents essential to use of standards on Fair, Reasonable and Non-discriminatory terms. Unfortunately, SSOs have not defined what FRAND means, leaving its interpretation to courts and regulators. This paper explains the economic concerns underlying FRAND – hold-up and strategic behavior leading to inefficient behavior in a standard setting context – and how a proper economic interpretation of FRAND can eliminate or mitigate those concerns. Ex ante analyses based on the “reasonable” principle can potentially eliminate hold-up, but, as a practical matter, may be costly, difficult to perform and error-prone. In such circumstances, the “non-discriminatory” principle of FRAND can provide some protection against hold-up even when the “reasonable” principle of FRAND does not.

Number of Pages in PDF File: 14

Keywords: FRAND, patent, standard essential

JEL Classification: O3

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Date posted: April 26, 2013  

Suggested Citation

Carlton , Dennis W. and Shampine, Allan, An Economic Interpretation of FRAND (April 24, 2013). Available at SSRN: http://ssrn.com/abstract=2256007 or http://dx.doi.org/10.2139/ssrn.2256007

Contact Information

Dennis W. Carlton (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
312-322-0215 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Allan Shampine
Compass Lexecon ( email )
United States
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