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A Welfare Economic Interpretation of FRAND

Author

Listed:
  • Jens Leth Hougaard

    (Department of Food and Resource Economics, University of Copenhagen)

  • Chiu Yu Ko

    (Department of Economics, National University Singapore)

  • Xuyao Zhang

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

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.

Suggested Citation

  • 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.
    • Handle: RePEc:foi:wpaper:2017_04
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    File URL: http://okonomi.foi.dk/workingpapers/WPpdf/WP2017/IFRO_WP_2017_04.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. 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).

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    More about this item

    Keywords

    FRAND-licensing; Fair royalties; Standard setting; Patent; Shapley value;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • K2 - Law and Economics - - Regulation and Business Law
    • L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations

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