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22 Tex. Intell. Prop. L.J. 95 (2013-2014)
Problems in Sharing the Surplus

handle is hein.journals/tipj22 and id is 101 raw text is: Problems in Sharing the Surplus Roger D. Blair and Thomas Knight* I. Introduction .......................................... ..... 95 II. Dividing the Surplus .........................................97 A. Multiple Patented Technologies and Sequential Bargaining ................99 B. Time Cost of Negotiating ....................... ............102 C. Substitutes to Patented Technologies ............................104 III. Legal Solutions.. ................................. ........105 A. Legal Mechanisms and the Elusive Search for Reasonableness.............105 IV. Concluding Remarks ................................. ...... 107 I. Introduction Dennis Carlton and Allan Shampine have addressed opportunistic and strategic behavior by standard-essential patent owners.' After a standard has been specified, and sunk investments have been made by those who would implement the standard, the holder of a standard-essential patent can demand more for the patent license than it could have demanded ex ante.2 This sort of ex post opportunism can lead to economically inefficient outcomes.' The solution is to limit such patent holders to fair, reasonable, and non-discriminatory (FRAND) patent license fees.4 Carlton and Shampine have advanced our understanding of precisely what this means. License fees are negotiated with individual downstream producers, typically after the standard has been adopted. As a consequence, downstream producers may * Department of Economics, University of Florida. We appreciate the financial support of the War- rington College of Business Administration. Dennis W. Carlton & Allan L. Shampine, An Economic Interpretation of FRAND, 9 J. COMPETITION L. & ECON. 531 (2013). 2 Id. at 534. 3 Id. at 535. 4 On the implications of FRAND see Rebecca Haw Allensworth, Casting a FRAND Shadow: The Importance of Legally Defining Fair and Reasonable and How Microsoft v. Motorola Missed the Mark, 22 Tex. INTELL. PROP. L.J. (forthcoming 2014); Thomas F. Cotter, The Comparative Law and Economics of Standard-Essential Patents and FRAND Royalties, 22 TEX. INTELL. PROP. L.J. (forthcoming 2014); Keith N. Hylton, A Unified Framework for Competition Policy and Innova- tion Policy, 22 TEX. INTELL. PROP. L.J. (forthcoming 2014); William H. Page, Judging Monopolis- tic Pricing: F/RAND and Antitrust Injury, 22 TEX. INTELL. PROP. L.J. (forthcoming 2014); D. Dan- iel Sokol & Wentong Zheng, FRAND in China, 22 TEX. INTELL. PROP. L.J. (forthcoming 2014); Christopher S. Yoo, Standard-Setting, FRAND, and Opportunism, 22 TEX. INTELL. PROP. L.J. (forthcoming 2014). 95

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