Licensing commitments in standard setting organizations

Because ICT standard frequently incorporate patented inventions, standard setting organizations have designed intellectual property policies whereby the owners of such “standard essential patents” must commit ex ante to license them on fair reasonable and non-discriminatory terms to manufacturers of standard-compliant products. However, these commitments are vague and may not be sufficient to prevent patent hold-up in practice. In this paper, we develop a simple framework to analyze the consequence of ineffective FRAND commitments, and compare them with legally binding commitments on a royalty level or a royalty cap. We show that the cap is systematically preferred by the licensor, while it has ambiguous effects on consumers depending on the licensorís preferred alternative strategy.