‘Hold-up’ cases against patent holders lack ‘systematic’ economic evidence, Wright says

31 January 2017 9:55am

12 June 2015. By Matthew Newman.

An economic theory that underpins competition authorities’ antitrust cases against patent holders lacks “systematic economic evidence,” the Federal Trade Commission’s junior Republican member said in an interview yesterday.

The theory, known as “hold-up,” has been cited by companies — particularly in the mobile device industry — for complaints to antitrust authorities. The theory is that companies with patents that are part of an industry standard can abuse their market power by imposing excessive royalties in breach of their commitments to grant licenses under fair, reasonable and non-discriminatory terms.

Competition agencies on both sides of the Atlantic have ruled against these patent holders for seeking injunctions against companies that are considered willing to license their technology.

Commissioner Joshua Wright said in an interview yesterday on the sidelines of a conference* in Brazil that he would need to see broad economic studies that the “hold-up” behavior has actually resulted in higher royalty rates and thus consumer harm because mobile devices are more expensive.

“Right now, the evidence that patent hold-up has led to higher prices, reduced output, changes to innovations, most of those to date, doesn’t exist,” Wright said.

Wright, an economics professor, has been an outspoken critic of the FTC’s two antitrust actions against standard-essential patent holders.

He said that the theory of anticompetitive hold-up should be backed up by “testable implications.”

The evidence of hold-up that should spark concern by antitrust authorities would be evidence that a threat of an injunction against a willing licensee would lead to “higher prices, reduced output and lower rates of innovation,” he said.

“Those are all testable things, many of them have been tested, and the tests have come out in a way that suggests no systematic problem with patent hold-up,” he said.

Wright said it’s “disappointing” that the debate about policy on standard-essential patents isn’t supported by strong economic data.

“That doesn’t mean that anticompetitive hold-up doesn’t exist in individual cases,” he said. “But it does mean that the proposition that there’s a systematic anticompetitive hold-up problem, lacks — seriously lacks — systematic economic evidence of the type that the economic profession would generally accept.”

Wright said that he would like to see “lots of cases” involving negotiations about standard-essential patent licenses. A comparison should be made with similar negotiations that don’t involve SEPs, he said.

“Maybe I could look across industries to those that are SEP-heavy and those that aren’t SEP-heavy,” he said.

“I could look and see if any of these differences in royalty rates aren’t just distributional fights between patent holders and licensees,” the FTC commissioner said. “I could see if they impact ultimate prices, which is what from an antitrust perspective we really care about.”

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