Thursday, October 1, 2015
Alexander Galetovic, Universidad de los Andes, Stephen Haber, Stanford University, Ross Levine, University of California, Berkeley provide AN EMPIRICAL EXAMINATION OF PATENT HOLDUP.
ABSTRACT: A large theoretical literature asserts that standard-essential patents (SEPs) allow their owners to “hold up” innovation by charging fees that exceed their incremental contribution to a final product. We evaluate two central, interrelated predictions of this SEP holdup hypothesis: (1) SEP-reliant industries should experience more stagnant quality-adjusted prices than non-SEP-reliant industries; and (2) court decisions that reduce the excessive power of SEP holders should accelerate innovation in SEP-reliant industries. We find no empirical support for either prediction. Indeed, SEP-reliant industries have the fastest quality-adjusted price declines in the U.S. economy.