Repeated Interaction in Standard Setting

38 Pages Posted: 11 Jun 2016 Last revised: 10 Mar 2017

Pierre Larouche

Université de Montréal; Center on Regulation in Europe (CERRE)

Florian Schuett

Tilburg Law and Economics Center (TILEC); Tilburg University - Center and Faculty of Economics and Business Administration

Date Written: June 9, 2016

Abstract

Standardization may allow the owners of standard-essential patents to charge royalty rates exceeding those that would have been negotiated ex ante. In practice, however, standard-setting efforts are often characterized by repeated interaction and complementarities among technologies. These features give firms that contribute technology to standards both the ability and the incentive to avoid excessive royalties by threatening to exclude other technology contributors from future rounds of standardization if they charge royalties exceeding 'fair, reasonable and non-discriminatory' (FRAND) levels. We show that such an outcome can indeed be sustained as a subgame perfect equilibrium and examine how the decision-making rules of standard-setting organizations (SSOs) affect the sustainability of FRAND royalties. Our analysis provides a novel justification for super-majority requirements and other rules frequently adopted by SSOs.

Keywords: standardization, standard-essential patents, FRAND royalties, royalty stacking, repeated games

JEL Classification: C73, L15, L24, O34

Suggested Citation

Larouche, Pierre and Schuett, Florian, Repeated Interaction in Standard Setting (June 9, 2016). Tilburg Law School Research Paper No. 16/2016; TILEC Discussion Paper No. 2016-010; CentER Discussion Paper No. 2016-021. Available at SSRN: https://ssrn.com/abstract=2792620 or http://dx.doi.org/10.2139/ssrn.2792620

Pierre Larouche (Contact Author)

Université de Montréal ( email )

Montreal, Quebec H3T 1B9
Canada

Center on Regulation in Europe (CERRE) ( email )

Rue de l'Industrie 42
Brussels, 1040
Belgium

Florian Schuett

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Tilburg University - Center and Faculty of Economics and Business Administration ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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