Patent Hold Up and Antitrust: How a Well-Intentioned Rule Could Retard Innovation
Vanderbilt University - Strategy and Business Economics
University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics; Boston University - Department of Economics
Gregory J. Werden
U.S. Department of Justice - Antitrust Division
December 3, 2010
Journal of Industrial Economics 60(2), pp. 249-273, June 2012
Licensing technology essential to a standard can present a hold-up problem. After designing new products incorporating a standard, a manufacturer could be confronted by an innovator asserting patent rights to essential technology. A damages remedy provided by antitrust or some other body of law solves this hold-up problem, inducing the socially optimal level of investment by the manufacturer, but it can reduce the innovator's licensing revenue and thereby retard innovation. The availability of an ex post damages remedy similarly alters the licensing terms in ex ante bargaining, with the result that fewer socially beneficial R\&D projects are undertaken.
Number of Pages in PDF File: 26
Keywords: patent hold-up, option contract, reasonable and nondiscriminatory royalties (RAND), antitrust
JEL Classification: D21, K21, L14, L4
Date posted: February 11, 2009 ; Last revised: October 22, 2014
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