Despite many years of speculation and recently adjusted
claims, there is no empirical support for the theory of “patent holdup.” Various
eminent experts refute allegations of systemic “patent holdup.” It is
likely that “patent holdup” has not occurred in the context of standards and
licensing of standards essential patents (SEPs) because of the fair, reasonable
and non-discriminatory (FRAND) licensing contracts and available recourse to
the courts have ensured that licensees cannot be forced to pay “excessive”
licensing fees.
“Patent holdout,” which is also sometimes referred to
as “reverse holdup,“ rather than “patent holdup” may instead be a prevalent
problem; although calls for remedies have largely been in response to “patent holdup”
allegations. Beguiled courts, antitrust authorities, government policy makers
and
even
a standards development organisation (SDO) are tipping the scales in favour
of “patent holdout” by infringing implementers of SEPs. This is destabilising the
equilibrium between the interests of the licensors and licensees forged by
consensus over decades in the
IPR
policies of SDOs such as ETSI with Fair, Reasonable and Non-Discriminatory
licensing. As
leading academics
note, “
FRAND Implies Balance” and “
FRAND [is not] a one-way street.”
Whereas
alleged “patent holdup” supposedly results in excessive royalties, “patent holdout”
is undermining licensors attempts even to achieve FRAND terms or to complete any
licensing at all in many cases. Licensors are therefore losing their ability to
make a fair return on their investments in SEP technologies. This discourages
ongoing investments in standard-essential technologies, participation in SDOs and
contribution to the standards.
Free-riders who are not paying for the IP they use are
gaining an unfair advantage over other implementers who are paying FRAND
royalties as well as stealing property rights from technology developers. There
is significant evidence of some infringers flourishing while avoiding paying
patent licensing fees on their manufactures and product sales for many years. They
can, for example, typically challenge FRAND offers in lengthy litigation before
paying any royalties. In some jurisdictions, even the royalties ultimately
awarded can be derisorily low.
[1]
In particular, various Asian OEMs accounting for a substantial proportion of
global smartphone sales remain significantly unlicensed for at least some of the
many SEPs they implement in the devices they manufacture or sell.
Unmentionable claims
With the passing of ten months since Shapiro presented his
paper at the IEEE event and with the DoJ’s name endorsing this latest development
in “patent holdup” theory, I believe it is high time to shine some light on the
flaws in arguments made by Shapiro and Rose by making their writings available
and by rebutting them here. I do not see why they should enjoy the privilege of
being heard and given the opportunity to persuade, while also indefinitely
being able to shield their postulations from scrutiny or criticism.
My full analysis on Shapiro's paper and Rose's presentation can be found in a pdf
here.