Patent 'Trespass' and the Royalty Gap: Exploring the Nature and Impact of Patent Holdout

73 Pages Posted: 7 Jun 2017 Last revised: 11 Aug 2017

Bowman Heiden

Center for Intellectual Property - Chalmers University of Technology, University of Gothenburg, and Norwegian University of Science and Technology

Nicolas Petit

University of Liege - School of Law; International Center for Law & Economics (ICLE); University of South Australia - School of Law

Date Written: June 6, 2017

Abstract

This paper studies the problem of patent holdout. Part I reviews the economic theory of holdout, with a specific emphasis on patents. It shows that the ordinary concept of holdout refers to the non-transacting conduct of a property owner, and that “patent trespass” is a better characterization for technology implementers’ attempt to evade the conclusion of licensing agreements. Part II proposes a definition and provide illustrations of patent trespass. To that end, the paper relies on the qualitative data gathered during interviews with industry stakeholders as well as on an analysis of holdout in case-law. Part III exposes the factors that determinatively make patent trespass transactional, systematic and/or systemic. Part IV records the results of of a quantitative study of patent trespass, based on the intuitions that arose from received theory and qualitative interviews as exposed in previous parts. The preliminary empirical results show a correlational link between the nature of patent trespass and the heterogeneity of market actors and markets. In particular, MNCs operating in developed markets seem to primarily deploy extensive delaying tactics with the main goal of reducing their royalty payments, while large firms in emerging markets (LFE) and small to medium-sized enterprises (SMEs), especially the “long tail” of microvendors, seek to avoid payment altogether.

Keywords: Patent, holdout, holdup, FRAND, RAND, standards, SDO, SSO, economics, antitrust

JEL Classification: K00, K12, K21, L41, L63, L96, O34

Suggested Citation

Heiden, Bowman and Petit, Nicolas, Patent 'Trespass' and the Royalty Gap: Exploring the Nature and Impact of Patent Holdout (June 6, 2017). Available at SSRN: https://ssrn.com/abstract=2981577

Bowman Heiden

Center for Intellectual Property - Chalmers University of Technology, University of Gothenburg, and Norwegian University of Science and Technology ( email )

Vera Sandbergs Alle 8
Gothenburg, SE-41296
Sweden

HOME PAGE: http://www.cip.chalmers.se

Nicolas Petit (Contact Author)

University of Liege - School of Law ( email )

B-4000 Liege
Belgium

International Center for Law & Economics (ICLE) ( email )

United States

HOME PAGE: http://www.laweconcenter.org/contact.html

University of South Australia - School of Law ( email )

GPO Box 2471
Adelaide SA 5001
Australia

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