Patent Holdup, Patent Remedies, and Antitrust Responses

By Cotter, Thomas F. | Journal of Corporation Law, Summer 2009 | Go to article overview

Patent Holdup, Patent Remedies, and Antitrust Responses


Cotter, Thomas F., Journal of Corporation Law


  I. INTRODUCTION
 II. THREE PRINCIPLES
III. WHAT PATENT HOLDUP IS
     A. Patent Holdup as a Type of Market Failure
     B. Other Necessary Elements of Patent Holdup
 IV. PATENT REMEDIES
  V. ANTITRUST RESPONSES
     A. Patent Ambush as an Antitrust Offense
     B. Collective Bargaining as to Patent Terms and Conditions
 VI. CONCLUSION

I. INTRODUCTION

In recent years, influential scholars, (1) practicing lawyers, (2) government officials, (3) government commissions, (4) enforcement agencies, (5) and courts (6) have all identified the phenomenon of "patent holdup" as a serious problem that may require various reforms to both patent and antitrust law. Within the last year or so, however, critics of this view have become increasingly vocal. In two recent papers, for example, Damien Geradin and his coauthors argue that, as an empirical matter, the frequency and magnitude of patent holdup costs are exaggerated. (7) A second line of attack, taken up in recent work by scholars including Einer Elhauge, (8) John Golden, (9) and J. Gregory Sidak, (10) focuses more on perceived theoretical vulnerabilities of the patent holdup literature--arguing, for example, that holdup is not necessarily inefficient, (11) and that neither patent law nor economic theory provides a baseline from which to evaluate whether patentees' royalty demands are so excessive as to constitute holdups. (12) Third, some of these same critics (and others) argue that the reforms sometimes proposed to remedy patent holdup-such as eliminating the presumption of injunctive relief in patent infringement cases, changing the method by which courts calculate reasonable royalties, and permitting standard setting organizations (SSOs) (13) to engage in collective bargaining with member patent owners over proposed licensing terms-threaten worse harms than the harms they would deter. (14)

In this Article, I address critiques two and three above (leaving the assessment of the empirical case against patent holdup to others, for now at least); 15 and I focus on two sets of policy tools in particular, the law of antitrust (generally) and the law of patent remedies. (16) In particular, I will argue, first, that many of the difficulties the critics claim to have uncovered in patent holdup theory may be due to their failure to appreciate patent holdup as a variation on other types of "holdup" or "holdout" behavior as discussed in the law-and-economics literature. My analysis leads to a proposed definition of patent holdup as occurring (1) when a component patent owner (17) (2) is able to exploit its bargaining power vis-a-vis downstream users (3) due to the possibility that the patent owner will be able to enjoin the manufacture, use, or sale of an end product that incorporates the patented invention, (4) in such a way as to threaten either (a) static deadweight losses far out of proportion to any likely increases in dynamic efficiency, or (b) dynamic efficiency losses due to downstream users' reduced incentives to invest in standard-specific technology or to engage in follow-up innovation. (18) Second, I will argue that patent law is generally more appropriate than antitrust law to deal with patent holdup, when it occurs, subject to two possible exceptions. (19) Third, potential error costs should play a large role in deciding how aggressively courts should police patent holdup. Courts' abilities to discern the presence of serious static or dynamic efficiency losses, and to respond appropriately, may be subject to reasonable dispute-though, I will argue, these limitations are not so profound as to counsel against any reforms.

Part II centers my analysis as part of a larger project that seeks to delimit the proper relationship between patent and antitrust based on three interrelated principles: first, that the ideal patent law would be structured so as to maximize the surplus of cognizable social benefits over cognizable social harms; second, that antitrust law should condemn the willful acquisition or maintenance of monopoly power but not its mere exercise; and third, that courts applying patent remedies or antitrust doctrine should take the substance of patent law as a given, and not fashion patent remedies or the law of antitrust to correct for errors that they perceive in that substance.

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