The Battle to Define the Meaning of FRAND
Doktorsavhandling, 2017

This thesis explores the battle among actors in the telecommunication value chain to define the meaning of FRAND (Fair, Reasonable, and Non-Discriminatory), which forms the basis for the IPR policy and standard-essential patent (SEP) licensing agreements in most standard-setting organizations (SSOs). As a secondary goal, this thesis seeks to improve the theoretical understanding of the changing nature of value creation from an industrial to a knowledge-based economic paradigm, particularly in relation to the changing role of patents to facilitate openness and regulate access. An investigation of the theoretical concepts that define FRAND and SEP value as well as an empirical investigation of the industrial dynamics and the interpretation of FRAND in the US judicial system is conducted. This includes an in-depth, single case study of the landmark Microsoft case as well as a comparative analysis across the four initial SEP/FRAND cases in US district court. Additionally, a comparative analysis of legal and market norms is conducted through case studies and doctrinal legal analysis from the theoretical perspective of the intellectual value chain. Finally, the concepts of patent holdup and holdout are analyzed in relation to mainstream economic theory, and patent holdout is further investigated through market data as well as interviews and a survey with industry experts. The results show that while FRAND-enabled standards have experienced historical market success, an expansion of the division of labor in the telecommunication value chain has created a profound divergence among market actors regarding the value of SEPs, often exceeding more than an order of magnitude. Concomitantly, the US courts have also produced diverse rulings in their attempt to value SEPs and set FRAND royalties with considerable implications on economic performance and efficiency. Additionally, several valuation principles are introduced regarding the determination of royalty base in patent damages that illustrate the importance of linking legal norms to the market norms of the standard in question. Furthermore, patent holdout is found to be a substantial phenomenon with specific strategies that differ in relation to actors in developed and emerging markets. Lastly, the concepts of holdup and holdout are shown to be used much differently in the current patent debate in comparison to mainstream economic theory leading to the proposal of a new, non-pejorative framework based on a spectrum of asymmetric bargaining power positions ranging from circumstantial to systematic to systemic.

standard essential patents

standards

patent holdup

FRAND

patent holdout

telecommunications

Vasa A, Vera Sandbergs Allé 8A, Chalmers
Opponent: W. Edward Steinmueller, University of Sussex, UK

Författare

Bo Heiden

Chalmers, Teknikens ekonomi och organisation, Entrepreneurship and Strategy

Heiden, Bowman. (2015). Valuing Standard Essential Patents in the Knowledge Economy: A Comparison of FRAND Royalty Methodologies in US Courts. International Journal of Standardization Research (IJSR), 13(1), 19-46.

Heiden, Bowman and Andreasson, Jens (2016), Reevaluating Patent Damages in the Knowledge Economy: The Intellectual Value Chain and the Royalty Base for Standard-Essential Patents, Criterion J. on Innovation, 1, 229.

Heiden, Bowman and Petit, Nicolas (2017), Patent Trespass and the Royalty Gap: Exploring the Nature and Impact of ‘Patent Holdout’, Stanford Hoover IP2 Working Paper Forthcoming in Santa Clara High Technology Law Journal.

While much of the attention in the popular press has focused on the smartphone war between Apple and Samsung, which is a relatively traditional industrial battle over competing products, a potentially more important intellectual property battle concerning the future of telecommunications in the knowledge economy has been ensuing in parallel. This second smartphone war is not a conventional battle over the market share of products between horizontal competitors on product markets, but a battle among vertical collaborators over the appropriation of value between upstream technology owners and downstream product implementers. As such, this conflict exemplifies a broader shift from an industrial to a knowledge-based economic paradigm that increasingly impacts all open standardization efforts as we move towards a world of greater technology convergence and connectivity.

The main purpose of this thesis is to better understand how competing interests seek to define the meaning of FRAND and influence the value of SEPs. This, in turn, sheds light on the role patents currently play and potentially could play in the development and commercialization of telecommunication standards from both an economic performance and efficiency perspective. In doing so, this thesis aims to provide a framework for balanced guidance to support policymakers and market actors seeking to define an agenda for the development of patent policies and IP-based business models adjusted to wealth and welfare creation in an era of open innovation.

Ämneskategorier

Tvärvetenskapliga studier

Ekonomi och näringsliv

Elektroteknik och elektronik

Drivkrafter

Innovation och entreprenörskap

ISBN

978-91-7597-640-2

Doktorsavhandlingar vid Chalmers tekniska högskola. Ny serie: 4321

Utgivare

Chalmers tekniska högskola

Vasa A, Vera Sandbergs Allé 8A, Chalmers

Opponent: W. Edward Steinmueller, University of Sussex, UK