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Moving beyond simple examples: Assessing the incremental value rule within standards

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  • Layne-Farrar, Anne
  • Llobet, Gerard

Abstract

This paper presents a model of patent licensing in a standard setting context when patented technologies are heterogeneous in multiple dimensions. The model allows us to assess a policy proposal put forth in the literature: that an incremental value pricing rule should define Fair, Reasonable, and Non-Discriminatory (FRAND) patent licensing within Standard Setting Organizations as it replicates the ex ante efficient competition outcome. We find that when patented technologies must be weighed on numerous factors, and not simply one-dimensional cost-savings, there is unlikely to be a single incremental value that can be agreed upon by all relevant parties. Furthermore, ex ante competition fails to select the efficient technologies by penalizing the more versatile ones. These results cast some doubt on the usefulness of the incremental value as a precise benchmark for FRAND.

Suggested Citation

  • Layne-Farrar, Anne & Llobet, Gerard, 2014. "Moving beyond simple examples: Assessing the incremental value rule within standards," International Journal of Industrial Organization, Elsevier, vol. 36(C), pages 57-69.
    • Handle: RePEc:eee:indorg:v:36:y:2014:i:c:p:57-69
    DOI: 10.1016/j.ijindorg.2013.10.004
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    References listed on IDEAS

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    Cited by:

    1. Pierre Larouche & Florian Schuett, 2019. "Repeated interaction in standard setting," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(3), pages 488-509, June.
    2. Josh Lerner & Jean Tirole, 2015. "Standard-Essential Patents," Journal of Political Economy, University of Chicago Press, vol. 123(3), pages 547-586.
    3. Stefano Comino & Fabio M. Manenti & NIkolaus Thumm, 2017. "The Role of Patents in Information and Communication Technologies (ICTs). A survey of the Literature," "Marco Fanno" Working Papers 0212, Dipartimento di Scienze Economiche "Marco Fanno".
    4. Richard Gilbert & Eirik Gaard Kristiansen, 2018. "Licensing and innovation with imperfect contract enforcement," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(2), pages 297-314, June.
    5. Wipusanawan, Chayanin, 2023. "Standard-essential patents, innovation, and competition," Other publications TiSEM 292e319a-9e6a-4465-8f8f-7, Tilburg University, School of Economics and Management.
    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.

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    More about this item

    Keywords

    Intellectual property; Standard Setting Organizations; FRAND; Patent licensing; Incremental value;
    All these keywords.

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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