An Economic Interpretation of FRAND

14 Pages Posted: 26 Apr 2013  

Dennis W. Carlton

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

Allan Shampine

Compass Lexecon

Date Written: April 24, 2013

Abstract

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

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

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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