An Algorithm Approach to FRAND Contracts

32 Pages Posted: 16 Oct 2020

See all articles by Pier Luigi Parcu

Pier Luigi Parcu

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS); Florence School of Regulation - Communications and Media Area

David Silei

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Date Written: September 2020

Abstract

In the context of standards development, the current mechanism of negotiation of FRAND royalties frequently brings to undesirable litigation. This is mainly due to the fact that a relevant part of the information concerning the standard, required to stipulate complete license contracts, is revealed only after the standard itself has spread in the market. In this respect, we propose a litigation-reducing algorithm to determine the FRAND level of the licensing royalty. Unlike the current negotiation mechanism, this algorithm can be defined ex-ante, so to increase contract completeness, because it includes a Bayesian-updating rule, able to address the presence of ex-ante uncertainty. We derive the algorithm from a generic oligopolistic-competition model, so to deliver characteristics of applicability to both price and quantity competition. Simulations in a linear-Cournot framework suggest the algorithm calculates FRAND royalties and may be usefully applied to real-life cases.

Keywords: FRAND Royalty, Standard Setting Organisations, Technical Standards.

Suggested Citation

Parcu, Pier Luigi and Silei, David, An Algorithm Approach to FRAND Contracts (September 2020). Robert Schuman Centre for Advanced Studies Research Paper No. RSCAS 2020/61, Available at SSRN: https://ssrn.com/abstract=3712312 or http://dx.doi.org/10.2139/ssrn.3712312

Pier Luigi Parcu (Contact Author)

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Florence School of Regulation - Communications and Media Area ( email )

Florence
Italy

David Silei

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

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