Working Paper: CEPR ID: DP16714
Authors: Gerard Llobet; Atilano Jorge Padilla
Abstract: This paper proposes a framework to analyze holdout in patent licensing negotiations. We show that when the validity of a patent is probabilistic, a potential downstream user has incentives to shun to pay the price offered by a patent holder to license the technology and risk being brought to court. These incentives are exacerbated when jurisdictions are local and the downstream producer can approachcourts sequentially. The informational spillovers across trials imply that this firm often finds optimal to go to court aiming to invalidate the patent in a jurisdiction due to the knock-on effect on future jurisdictions. This process results in excessive litigation compared to when the jurisdiction is global. The distortions from sequential litigation are likely to be aggravated when final competition is accounted for orwhen patent injunctions are not allowed.
Keywords: Intellectual Property; Standard Setting Organizations; Patent Licensing; Patent Holdout; Global Jurisdictions
JEL Codes: L15; L24; O31; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| downstream producers (L99) | refuse a license (D45) |
| refuse a license (D45) | increased litigation (K41) |
| increased litigation (K41) | social welfare losses (H53) |
| downstream producers (L99) | excessive litigation (K41) |
| local jurisdictions (H73) | informational spillovers (O36) |
| sequential trials (C90) | subsequent litigation strategies (K41) |
| high-value innovations (O35) | increased royalty demands (D45) |
| patent injunctions (D45) | mitigate holdout strategies (D86) |