A. Galetovic, S.Haber (2017). The Fallacies of Patent Holdup Theory. Journal of Competition Law and Economics, vol. 13, 1-44.
Patent-holdup theory avers that the patent system threatens the rate of innovation
in the U.S. economy, particularly in information technology industries that are
heavily reliant on standard-essential patents. We show that arrays of empirical tests
falsify the core predictions of the theory. We therefore examine the logic of patentholdup theory. We show that patent-holdup theory conflates two mutually inconsistent economic mechanisms: holdup (the appropriation of a quasi rent) and the
exercise of monopoly power (to set the market price to extract a monopoly rent).
Moreover, three fallacies underpin patent-holdup theory: (1) that patent holdup is
a straightforward variant of holdup as it is understood in transaction-cost economics; (2) that royalty stacking is holdup repeated multiple times on the same product;
and (3) that standard-essential patents contribute little or no value to the markets
they help create. These fallacies give rise to a theory that is logically inconsistent
and incomplete, and that ignores economic fundamentals. The flaws in logic of
patent-holdup theory, and its lack of fit with the evidence, suggest that a new theory about the mechanics and dynamics of SEP-intensive IT industries is called for,
both as a matter of science and as a guide to antitrust and patent policies.