Is Patent Holdup a Hoax?
3 Criterion Journal on Innovation 401
154 Pages Posted: 4 Dec 2018
Date Written: 2018
From its birth, the patent-holdup conjecture has been commissioned legal advocacy masquerading as economic science. In 2007, the patent-holdup conjecture debuted in two law review articles, one of which disclosed funding from Apple, Cisco, Intel, and Microsoft. The conjecture quickly became de rigueur for any implementer of an industry standard to allege against a holder of standard-essential patents (SEPs) when the parties dispute whether the SEP holder has offered to license those patents on legitimately fair, reasonable, and nondiscriminatory (FRAND) terms. Patent holdup is a sui generis theory of excessive pricing rather than an application of Oliver Williamson’s Nobel prize-winning theory of how economic actors use contracts and vertical integration to prevent the appropriation of quasi rents associated with relationship-specific investments. Since 2007, skeptics have shown that the patent-holdup conjecture is flawed on theoretical grounds and devoid of empirical substantiation. Rather than answer those critics, proponents of the conjecture have invoked rhetorical tropes, erroneously claimed that their conjecture descends directly from Williamson, and disparaged critics for demanding scientific proof of the conjecture’s validity. Proponents have also ignored that the market for corporate control enables any implementer the size of Apple, Cisco, Intel, or Microsoft promptly to defeat the threat of patent holdup should it plausibly arise. Consequently, such an implementer’s claim of patent holdup by a publicly traded corporation is presumptively absurd. Furthermore, a necessary condition for authentically Williamsonian holdup to occur is surprise (which requires uncertainty); however, since 2007, scores of reported lawsuits involving hundreds of law firms and implementers have discussed patent holdup. That fact forces one to ask whether there remains any major law firm or implementer in the United States as of 2018 that has not heard that implementers should inoculate themselves from the theoretical danger of holdup. Since 2007, the patent-holdup conjecture has been successfully invoked to legitimate a line of advocacy for well-capitalized firms that seek to pay less to use someone else’s patented technology and for U.S. government officials who seek to justify coercion that is not predicated on the violation of any existing American law. It is a testament to the shrewdness of the corporate advocacy on display that a theory so fatuous could enthrall for so long so many possessing the intellect and perspicacity to know better. After more than a decade of dystopian predictions, a reckoning is due. It is time to ask whether the patent-holdup conjecture is a hoax.
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