An Economic Interpretation of FRAND
14 Pages Posted: 26 Apr 2013
Date Written: 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.
Keywords: FRAND, patent, standard essential
JEL Classification: O3
Suggested Citation: Suggested Citation