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A Welfare Economic Interpretation of FRAND

38 Pages Posted: 25 Apr 2017  

Jens Leth Hougaard

University of Copenhagen - Institute of Food and Resource Economics

Chiu Yu Ko

National University of Singapore (NUS) - Department of Economics

Xuyao Zhang

National University of Singapore (NUS) - Lee Kuan Yew School of Public Policy

Date Written: April 23, 2017

Abstract

Setting an industry-wide standard is crucial for information and communication technologies for interoperability, compatibility and efficiency. To minimize holdup problems, patent holders are often required to ex-ante commit to licensing their technologies under Fair, Reasonable and Non-Discriminatory (FRAND) terms. Yet, there is little consensus, in both courtrooms and industries, on the exact meaning of FRAND. We propose a welfare economic framework that enables a precise distinction: fairness in the distribution of royalty payments among patent users, and reasonableness in setting the size of the compensation to the patent holder, where both the size and the distribution of payments are determined in a non-discriminatory way making sure that similar firms are treated similarly. We illustrate our approach in various classic models from industrial organization, and discuss further potential applications.

Keywords: FRAND-licensing, Fair royalties, Standard setting, Patent, Shapley value

JEL Classification: D63, K2, L3, L44

Suggested Citation

Leth Hougaard, Jens and Ko, Chiu Yu and Zhang, Xuyao, A Welfare Economic Interpretation of FRAND (April 23, 2017). Available at SSRN: https://ssrn.com/abstract=2958212

Jens Leth Hougaard

University of Copenhagen - Institute of Food and Resource Economics

Rolighedsvej 25
Copenhagen, 1958
Denmark

Chiu Yu Ko (Contact Author)

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

HOME PAGE: http://sites.google.com/site/kochiuyu/

Xuyao Zhang

National University of Singapore (NUS) - Lee Kuan Yew School of Public Policy ( email )

Singapore 117591
Singapore

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