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 Patent Holdup Theory. We 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.
Read the paper: The Fallacies of Patent Holdup Theory