Salant, David J (2007): Formulas for fair, reasonable and non-discriminatory royalty determination. Forthcoming in:
Download (227Kb) | Preview
This paper takes an axiomatic approach to determining “Fair, Reasonable, and Non-Discriminatory” (“FRAND”) royalties for intellectual property (“IP”) rights. Drawing on the extensive game theory literature on “surplus sharing/cost sharing” problems, I describe specific formulas for determining license fees that can be derived from basic fairness principles. In particular, I describe the Shapley Value, the Proportional Sharing Rule and the Nucleolus. The Proportional Sharing Rule has the advantage that it is the only rule that is invariant to mergers and splitting of the IP owners. I also explain why, at times, there may be no acceptable to solution. Further, I contrast these rules with the Efficient Component Pricing Rule (“ECPR”) suggested by Baumol and Swanson. Unlike, the ECPR, the rules identified in this paper can uniquely determine license fees when there is more than one owner of essential IP, and also incorporate various notions of fairness and equity.
|Item Type:||MPRA Paper|
|Original Title:||Formulas for fair, reasonable and non-discriminatory royalty determination|
|Keywords:||FRAND, Royalty Rates, Intellectual Property|
|Subjects:||O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development; Intellectual Property Rights > O34 - Intellectual Property Rights
L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L24 - Contracting Out; Joint Ventures; Technology Licensing
|Depositing User:||David Salant|
|Date Deposited:||05. May 2008 00:19|
|Last Modified:||11. Feb 2013 19:36|
Baumol, William G. and Daniel J. Swanson (2005) "Reasonable and Non-Discriminatory (RAND) Royalties, Standards Selection, and Control of Market Power,” Anti-Trust Law Journal 73: 1 – 58.
Friedman, James W (1986), Game Theory with Applications to Economics, Oxford: Oxford University Press.
Layne-Farrar, Anne, A. Jorge Padilla, and Richard Schmalensee (2006) “Pricing Patents in Standard Setting Organisations: Making Sense of FRAND Commitments,” available at http://search.ssrn.com/sol3/papers.cfm?abstract_id=937930.
Moulin, Herve (2002) “Axiomatic Cost and Surplus Sharing,” in K. Arrow, A.K Sen and K. Suzumura eds., Handbook of Social Choice and Welfare, Amsterdam: North Holland.
Nash, John F. (1950) “The Bargaining Problem,” Econometrica 18: 155-62
Nash, John F. (1953) “Two Person Cooperative Games,” Econometrica 21: 125-40.
Osborne, Martin and Ariel Rubinstein (1990) Bargaining and Markets, San Diego: Academic Press.
Rubinstein, Ariel (1982) “Perfect Equilibrium in a Bargaining Model,” Econometrica 50: 97-109.
Serrano, Roberto, (1995) “Strategic Bargaining, Surplus Sharing Problems, and the Nucleolus,” Journal of Mathematical Economics 24:319-29.
Schmeidler, David (1969) “The Nucleolus of a Characteristic Function Game, Siam Journal of Applied Mathematics 17:1163-70.
Shapley, Lloyd S. (1953) “A value for n-person games,” in H.W.Kuhn and A.W.Tucker, eds., Contributions to the Theory of Games: Volume II, Annals of Mathematical Studies No. 28, Princeton, NJ: Princeton University Press.
Stole, Lars A. and Jeffrey Zwiebel (1996a) :Intra-Firm Bargaining under Non-Binding Contracts,” Review of Economic Studies 63: 375-410.
Stole, Lars A. and Jeffrey Zwiebel (1996b) “Organizational Design and Technology Choice under Intrafirm Bargaining,” The American Economic Review 86: 195-222.
Tijs, S. H. and T.S.H. Driessen (1986) “Game Theory and Cost Allocation Problems,” Management Science 32: 1015-1028.
Winter, Eyal (2002) “The Shapley Value,” in Robert Aumann and Sergio Hart, eds., Handbook of Game Theory, Volume 3, Amsterdam: North Holland.
Young, H. Peyton (1994), “Cost Allocation,” in Robert Aumann and Sergio Hart, eds., Handbook of Game Theory, Volume 2, Amsterdam: North Holland.