An Economic Interpretation of FRAND
Dennis W. Carlton
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
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
Date posted: April 26, 2013
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