AN ECONOMIC INTERPRETATION OF FRAND

Dennis Carlton and Allan L. Shampine

Journal of Competition Law and Economics, 2013, vol. 9, issue 3, 531-552

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.

JEL-codes: O3 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:oup:jcomle:v:9:y:2013:i:3:p:531-552.

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Journal of Competition Law and Economics is currently edited by Nicholas Economides, Amelia Fletcher, Michal Gal, Damien Geradin, Ioannis Lianos and Tommaso Valletti

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