08 November 2018. The FRAND licensing scheme is intended to avoid SEP owners capturing the value of a technology being “designed in” to a standard, otherwise known as “lock-in.” Within the framework of standard-setting organizations, companies (often competitors) jointly develop a standard and choose which technology will be included (and which technology will be left out). Left unchecked, SEP owners may seek to use lock-in to extract excessive royalties from implementers based on (1) the difficulty implementers face in designing around individual patents that are essential to a standard and (2) prior investments in creating products incorporating the standard. 4 When SEP owners attempt to leverage the lock-in effect to extract royalties beyond the value of their inventions, they engage in hold-up.
One rationale for seeking FRAND commitments from SEP owners is that standardization only works if it accounts for the total cost of complying with a standard, and excessive royalty rates impair wide-spread adoption of the standard.
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