Working Paper, January 2006
This paper looks at whether ex ante (pre-standard) actions effectively prevent opportunistic firm behaviors.
When standards include patented technology, asking the patent holder to license it on fair terms works reasonably well, and no one has a better idea.
- Firms contributing technology often agree with the standard-setting organizations (SSOs) to license it on fair, reasonable, and nondiscriminatory terms (“RAND” or “FRAND”).
- Some assert problems with FRAND after the standard is set (“ex post”):
- Patent holders can charge more than expected.
- If each patent holder charges a bit, it can add up to a lot of expense for consumers in the price of the final product (“royalty stacking”).
- The data shows that these problems are not serious in practice.
- Instead of RAND, critics propose auctions, collective negotiation, or insisting patent holders disclose terms up front. But each “solution” invites anticompetitive behavior and inappropriate “one-size-fits-all” terms.