Rescuing Antitrust’s Role in Patent Holdup

Abstract

Standards, common platforms allowing products to work together, are ubiquitous in our economy. But imagine that a company:

(1) has a patent needed to use a standard,

(2) promises to license the patent on reasonable terms, and then

(3) says it was just kidding as it seeks to block the product or charge an exorbitant price.

In such a case, the users of the standard are stuck. They have invested in technologies based on the standard. And they may be forced to pay a price reflecting not the added value of the technology but the costs of switching to a new technology. In other words, they are subject to “patent holdup.”

The concerns threatened by patent holdup have consistently been acknowledged by officials in Republican and Democratic administrations. These concerns are front and center in Carl Shapiro and Mark Lemley’s excellent article, The Role of Antitrust in Preventing Patent Holdup. In contrast, they are neglected by the current Assistant Attorney General of the Department of Justice’s Antitrust Division, Makan Delrahim.

This Essay does four things. First, it explains why the Shapiro/Lemley article is important, particularly to situate today’s patent holdup debates in the larger context of transaction cost economics. Second, it raises questions related to standards organizations’ rules and antitrust law that the authors could more fully consider. Third, it offers additional support showing the radical nature of Delrahim’s position. And fourth, it opines on the nature of academic debate and its effect on antitrust enforcement.

Keywords: standards, patents, antitrust, holdup

JEL Classification: K21, L40, L41, L63, O31, O34