FRAND terms from a competition authority's approach: a new essay

The issue of FRAND licensing terms is critical for all IT companies involved in a standardization process but it is also a headache for competition authorities. As Mario Mariniello, Chief Competition Economist team member of EC's Directorate General for Competition, recently highlighted in an article published in OUP's Journal of Competition Law and Economics (JCLE) entitled "Fair, Reasonable and Non-discriminatory (FRAND) Terms: A Challenge for Competition Authorities", the adoption of a technology standard can raise competition concerns when the owner of the chosen technology abuses of the additional market power gained through standardization. FRAND terms can therefore be seen as a corrective device seeking a balance of interests between the licensor, who is entitled to the incremental rent "that arises from standardization with respect to the next best alternative", and the licensees, who can be considered as "locked-in" (that is forced to adopt the chosen standard).

In this article, Mario Mariniello highlights the fact that "FRAND commitments involve an incomplete contract between licensors and licensees", their implementation will therefore be necessarily controversial. From an antitrust perspective FRAND commitments are very ambiguous because there is no commonly accepted method to assess their violation. The author therefore proposes a four-pronged screening-test to assess if such a violation has occured:

If the four following conditions criteria are met:

(1) ex-ante, a credible alternative to the adopted technology exists;
(2) ex-ante, prospective licensees cannot reasonably anticipate the licensor’s ex-post requests;
(3) ex-post, the licensor requests worse licensing conditions than ex-ante; and
(4) ex-post, the licensee is locked into the technology,

then a FRAND violation could have occurred and a competition authority needs to investigate and decide whether the terms and conditions of the defendant are fair, reasonable and non-discriminatory, which involves "an objective valuation of the royalty rate that patent holder would have been to charge if the standard did not increase its market power, subject to the broader context of the license contract."

An access to this very interesting analysis can be found here.
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