Three New Papers on Holdup, Standards

1.  Rudi Bekkers has posted a paper on ssrn titled Concerns and Evidence for Ex-Post Hold-Up with Essential Patents.  Here is a link to the paper, and here is the abstract:

Patented technologies may add significant value to technical standards. But the owners of patents that are necessary required in order to implement a standard (“essential patents”) obtain a particularly powerful position. One of the widely recognized risks here is patent holdup, where the patent owner demands inflated prices, much beyond the value of their specific patented technology, knowing that implementers are locked in and have no other choice than to obtain a license. Many standard setting organisations have “FRAND” patent policies in place that aim to avoid hold-up, among other things. 

While it has been argued that hold-up is a theoretical risk only, and does not manifest itself in 'real world' scenarios, this paper discusses a number of recent, seminal court cases in which the judge determined that for essential patents, fees were demanded that wildly exceeded what the court ultimately deemed to be a FRAND royalty rate. In other cases, competition authorities have issued decision in which they ruled that for a patent owner, seeking injunctive relief for essential patents can be an illegal act as such, considering that such conduct further increases the risk for hold-up.

The risk for hold-up is recognised by standard setting bodies, witnessed by the many discussions taken place in these organisations, in the past but especially over the last two years. Yet, possible policy changes are often hard to agree upon, given the strongly divergent interests of the members of such organisations. IEEE is the first standard setting body to make significant changes to its policy, aiming to mitigate hold up risks. As pointed out by the US Department of Justice in their review, IEEE’s new policy has some significant potential benefits.

2.  Taking a rather different view is this paper by Alexander Galetovic, Stephen Haber, and Ross Levine, titled An Empirical Examination of Patent Holdup.  Here is the abstract:

A large theoretical literature asserts that standard-essential patents (SEPs) allow their owners to “hold up” innovation by charging fees that exceed their incremental contribution to a final product. We evaluate two central, interrelated predictions of this SEP holdup hypothesis: (1) SEP-reliant industries should experience more stagnant quality-adjusted prices than non-SEP-reliant industries; and (2) court decisions that reduce the excessive power of SEP holders should accelerate innovation in SEP-reliant industries. We find no empirical support for either prediction. Indeed, SEP-reliant industries have the fastest quality-adjusted price declines in the U.S. economy.

(Hat tip to Danny Sokol, who mentioned this paper recently on his antitrust blog.)  For an earlier paper by the same three authors, titled Patent Holdup:  Do Patent Holders Hold Up Innovation?, Hoover IP2 Working Paper Series No. 14011 (May 2014), see here; for my reservations regarding the conclusion expressed in that paper, see here. 

3.  Nuno Pires de Carvalho has published a paper titled Technical standards, intellectual property, and competition--a holistic view, 47 Washington University Journal of Law & Policy 61 (2015).  Here is the abstract:

Until now, most of the literature that regards the interaction between intellectual property and both mandatory and voluntary technical standards has been limited to a particular area of intellectual property. This Article examines the interaction from a holistic perspective, involving the main intellectual property disciplines: patents, trademarks, and copyrights. Most generally, a tension exists between intellectual property and technical standards due to their differing—and somewhat opposing—objectives and public policies. Further, the interaction between technical standards and intellectual property typically depends on the categorization of the technical standard as mandatory or voluntary. Because the public policies that inform technical standards are oriented towards reducing product and service differentiation, they reduce market freedom. The reduction in market freedom is limited, however, because technical standards are frequently adopted for technical and economic efficiency, which may have a downstream, positive effect on competition.