Assessing RAND Royalties: A Response to Contreras and Gilbert, 'A Unified Framework for RAND and Other Reasonable Royalties'

Abstract

In a recent working paper, Profs. Contreras and Gilbert propose a “unified framework” for assessing royalties for both (a) patents that are subject to a FRAND commitment and (b) patents that are not. We believe that these two classes of patents are different (if for no other reason than in the former case, but not the latter case, the patent holder has agreed to give up the exclusive right to use the patented technology granted by the patent law), so that using a “unified approach” risks ignoring an important difference. They urge the use of an “incremental value” approach to evaluating royalties, while downplaying the fact that measuring “incremental value” requires identifying the next-best alternative, and ignoring the fact that there is a very big difference between the situation in which the next-best alternative is in the public domain (and thus freely available for others to use at no charge) and the situation in which the next-best alternative is itself patented. We conclude that their proposal for using a “unified approach” to evaluate royalties for both FRAND-encumbered and non-FRAND-encumbered patents ignores significant differences between the two types of patents.

Keywords: Gilbert, Contreras, patent, FRAND, licensing, damages, royalties

JEL Classification: D23, K11