PATENT HOLD UP: “The fallacies of patent hold up theory”

The theory of Patent Holdup remains remarkably devoid of any empirical evidence. The paper delivered by Prof Carl Shapiro, one of the key proponents of that theory, at IEEE in late 2015 did nothing to fill that void, arguing that such evidence was unnecessary as it can be inferred just like, others have argued, like “dark matter”. As posted previously, a link to a copy of this still unpublished paper can be found embedded in the following commentary by Keith Mallinson:

https://www.wiseharbor.com/pdfs/Mallinson%20on%20Holdup%20and%20Holdout%20for%20IP%20Finance%2016%20Aug%202016.pdf

Before moving on to the newly published paper, I would like to point out, in all fairness, that the paper does indeed cite what it claims to be the "leading example" of hold up, namely the notorious General Motors/Fisher Body transaction. However, that so called example has been shown - in thoroughly researched papers - such as the one cited below by Professor Dan Spulber et al, but there are others, to have been wholly based upon a recitation of false facts. More detail on this flawed example can be found at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=231736 In other words, General Motors/Fisher Body is simply not a real and viable example of hold up, as claimed.

If you have an interest in this issue which has guided antitrust enforcement policies in many jurisdictions, including my own, then please read this just released paper by my friend Professor Stephen Haber of Stanford: https://hooverip2.org/working-paper/wp16009/ https://hooverip2.org/wp-content/uploads/ip2-wp16009-paper-1.pdf

In that paper both he and his co author, Alex Galetovic, examine each of the pillars that support the theory of Patent Holdup and find them (seriously) wanting. They find that the theory is based on three sequential fallacies: 1) patent holdup is a straightforward variant of holdup as it is understood in transaction cost economics; 2) royalty stacking is holdup repeated multiple times on the same product; 3) 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, incomplete, and ignores economic fundamentals. The flaws in logic of Patent Holdup Theory, and its lack of fit with the evidence, suggests 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.