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21 Geo. Mason L. Rev. 919 (2013-2014)
The Meaning of Fair and Reasonable in the Context of Third-Party Determination of Frand Terms

handle is hein.journals/gmlr21 and id is 943 raw text is: 


2014]


     THE MEANING OF FAIR AND REASONABLE IN
   THE CONTEXT OF THIRD-PARTY DETERMINATION
                           OF FRAND TERMS


                               Damien Geradin*



INTRODUCTION


      The meaning of the voluntary commitment made by holders of stand-
ards-essential patents (SEPs) to license these patents on fair, reasonable,
and non-discriminatory (FRAND) terms has been the subject of signifi-
cant debate in the legal and economic literature.' While some authors con-
sider FRAND to have generally worked well in that the overwhelming ma-
jority of agreements to license SEPs are concluded through arm's-length
negotiations,2 others have found this notion too vague to prevent alleged
patent abuses.3
      The concern over abuses has led some scholars to suggest interpreta-
tions of or additions to FRAND whereby, for instance, fair and reasona-
ble means that a patent holder: (1) could charge no more than the ex ante
incremental value of his invention over the next best technical alterna-
tive;4 (2) has to set his royalty rate based on a mathematical proportion of

    * Professor of Law, George Mason University School of Law and Professor of Competition Law
& Economics, Tilburg University. The Author has advised a number of companies on standards-
essential patent-related issues both on the licensor and the licensee sides. The opinions expressed in this
Paper are the Author's own only.
     1 See, e.g., George S. Cary et al., Antitrust Implications of Abuse of Standard-Setting, 15 GEO.
MASON L. REV. 1241, 1254 (2008); Philippe Chappatte, FRAND Commitments-The Case for Antitrust
Intervention, 5 EUR. COMPETITION J. 319, 319 (2009); Thomas F. Cotter, Patent Holdup, Patent Reme-
dies, and Antitrust Responses, 34 J. CORP. L. 1151, 1152 (2009); Joseph Farrell et al., Standard Setting,
Patents, and Hold-Up, 74 ANTITRUST L.J. 603, 603 (2007); Damien Geradin & Miguel Rato, FRAND
Commitments and EC Competition Law: A Reply to Philippe Chappatte, 6 EUR. COMPETITION J. 129,
129 (2010) [hereinafter Gerardin & Rato, Reply]; Damien Geradin & Miguel Rato, Can Standard-
Setting Lead to Exploitative Abuse? A Dissonant View on Patent Hold-up, Royalty-Stacking and the
Meaning ofFRAND, 3 EUR. COMPETITION J. 101, 101 (2007) [hereinafter Gerardin & Rato, A Dissonant
View]; Mark A. Lemley & Carl Shapiro, Patent Holdup and Royalty Stacking, 85 TEX. L. REV. 1991,
1991 (2007); Daniel G. Swanson & William J. Baumol, Reasonable and Nondiscriminatory (RAND)
Royalties, Standards Selection, and Control of Market Power, 73 ANTITRUST L.J. 1, 1 (2005).
    2 See Geradin & Rato, Reply, supra note 1, at 152.
    3 See, e.g., Chappatte, supra note 1, at 319.
    4 See Lemley & Shapiro, supra note 1, at 1996; see also Dennis W. Carlton & Allary L.
 Shampine, An Economic Interpretation of FRAND, 9 J. COMPETITION L. & ECON. 531, 536 (2013) (In
 a patent infringement case not involving standards, a reasonable royalty is one that would have been
 negotiated ex ante-that is, one that would have been negotiated before the potential licensee had adopt-
 ed the technology at issue and incurred sunk costs-a rate that does not reflect the ability of the patent

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