Pricing Patents for Licensing in Standard Setting Organisations: Making Sense of FRAND Commitments

Layne-Farrar, Anna, Atilano Jorge Padilla and Richard Schmalensee

No 6025, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We explore potential methods for assessing whether licensing terms for intellectual property declared essential within a standard setting organization can be considered fair, reasonable, and non-discriminatory (FRAND). We first consider extending Georgia-Pacific to a standard setting context. We then evaluate numeric proportionality, which is modelled after certain patent pool arrangements and which has been proposed in a pending FRAND antitrust suit. We then turn to two economic models with potential. The first—the efficient component-pricing rule (ECPR)—is based on the economic concept of market competition. The second—the Shapley value method—is based on cooperative game theory models and social concepts for a fair division of rents. Interestingly, these two distinct methods suggest a similar benchmark for evaluating FRAND licenses, but ones which might appeal differently to the courts and competition authorities in the US as compared to Europe. We find that under any approach, patents covering “essential” technologies with a greater contribution to the value of the standard and without close substitutes before the standard gets adopted should receive higher royalty payments after the adoption of the standard.

Keywords: Efficiency; Fairness; Licensing; Patents; Standard Setting Organizations (search for similar items in EconPapers)
JEL-codes: L24 L40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ino, nep-ipr and nep-net
Date: 2007-01
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