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An Economic Interpretation Of Frand

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  • Dennis W. Carlton
  • Allan L. Shampine

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 (FRAND) terms. Unfortunately, SSOs have not defined what FRAND means, leaving its interpretation to courts and regulators. This article 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.

Suggested Citation

  • Dennis W. Carlton & Allan L. Shampine, 2013. "An Economic Interpretation Of Frand," Journal of Competition Law and Economics, Oxford University Press, vol. 9(3), pages 531-552.
    • Handle: RePEc:oup:jcomle:v:9:y:2013:i:3:p:531-552.
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    File URL: http://hdl.handle.net/10.1093/joclec/nht019
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    Citations

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    Cited by:

    1. Jay Pil Choi, 2016. "FRAND Royalties and Injunctions for Standard Essential Patents," Global Economic Review, Taylor & Francis Journals, vol. 45(3), pages 233-250, July.
    2. Jens Leth Hougaard & Chiu Yu Ko & Xuyao Zhang, 2017. "A Welfare Economic Interpretation of FRAND," IFRO Working Paper 2017/04, University of Copenhagen, Department of Food and Resource Economics.
    3. Dennis Carlton & Bryan Keating, 2015. "Rethinking Antitrust in the Presence of Transaction Costs: Coasian Implications," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 46(4), pages 307-321, June.
    4. Chryssoula Pentheroudakis & Justus A. Baron, 2016. "Licensing Terms of Standard Essential Patents: A Comprehensive Analysis of Cases," JRC Research Reports JRC104068, Joint Research Centre.
    5. Jong-Hee Hahn & Chan KIm, 2018. "Input price discrimination with differentiated final products," Working papers 2018rwp-118, Yonsei University, Yonsei Economics Research Institute.
    6. Hougaard, Jens Leth & Ko, Chiu Yu & Zhang, Xuyao, 2023. "A conceptual model for FRAND royalty setting," Mathematical Social Sciences, Elsevier, vol. 123(C), pages 167-176.
    7. Baron, Justus, 2020. "Counting standard contributions to measure the value of patent portfolios - A tale of apples and oranges," Telecommunications Policy, Elsevier, vol. 44(3).
    8. Jacob Seifert, 2015. "Welfare effects of compulsory licensing," Journal of Regulatory Economics, Springer, vol. 48(3), pages 317-350, December.
    9. Rossi, Maria Alessandra, 2022. "The advent of 5G and the non-discrimination principle," Telecommunications Policy, Elsevier, vol. 46(4).

    More about this item

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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