A Theory of Socially-Inefficient Patent Holdout

44 Pages Posted: 30 Jan 2022

See all articles by Gerard Llobet

Gerard Llobet

Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR)

Jorge Padilla

Compass Lexecon

Multiple version iconThere are 2 versions of this paper

Date Written: October 13, 2021

Abstract

This paper proposes a framework to analyze holdout in patent licensing negotiations. We show that when the validity of a patent is probabilistic, a potential
downstream user has incentives to shun to pay the price offered by a patent holder
to license the technology and risk being brought to court. These incentives are exacerbated when jurisdictions are local and the downstream producer can approach
courts sequentially. The informational spillovers across trials imply that this firm
often finds optimal to go to court aiming to invalidate the patent in a jurisdiction
due to the knock-on effect on future jurisdictions. This process results in excessive
litigation compared to when the jurisdiction is global. The distortions from sequential litigation are likely to be aggravated when final competition is accounted for or
when patent injunctions are not allowed.

Keywords: Intellectual Property, Standard Setting Organizations, Patent Licensing, Patent Holdout, Global Jurisdictions

JEL Classification: L15, L24, O31, O34

Suggested Citation

Llobet, Gerard and Padilla, Jorge, A Theory of Socially-Inefficient Patent Holdout (October 13, 2021). Available at SSRN: https://ssrn.com/abstract=4021461 or http://dx.doi.org/10.2139/ssrn.4021461

Gerard Llobet

Centre for Monetary and Financial Studies (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
SPAIN
34 91 429 0551 (Phone)
34 91 429 1056 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Jorge Padilla (Contact Author)

Compass Lexecon ( email )

Paseo de la Castellana 7
Madrid, 28046
Spain

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