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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. 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. Carlton and Shampine have advanced our understanding of precisely what this means.
The remainder of this article is organized as follows. Section II examines the difficulty that economic analysis has in predicting a unique bargaining solution and presents a number of different market arrangements that affect that prediction. Section III briefly explores the possible resort to eminent domain and compulsory licensing. As will be shown, neither of these approaches solves the problem. Section IV closes with concluding remarks.
Roger D. Blair & Thomas Knight, Problems in Sharing the Surplus, 22 Tex. Intell. Prop. L.J. 95 (2013)