PATENT "TRESPASS" AND THE ROYALTY GAP: EXPLORING THE NATURE AND IMPACT OF PATENT HOLDOUT

This paper studies a problem known as "patent holdout." Part I reviews the literature on holdout, with a specific emphasis on patents. The literature shows that the ordinary concept of holdout refers to the non-transacting conduct of a property owner, and that "patent trespass" is a better characterization for technology implementers' attempt to evade concluding licensing agreements with patent owners. Part II proposes a definition and illustrations of patent trespass, relying on the qualitative data collected during interviews with industry stakeholders as well as on an analysis of US and European case law. Part III conceptualizes the factors that determinatively make patent trespass circumstantial, systematic, and/or systemic. Part IV records the results of a quantitative study of patent trespass, based on the intuitions that arose from received theory and qualitative interviews as exposed in previous parts. The preliminary empirical results show a correlation between the nature of patent trespass and the heterogeneity of market actors and markets. In particular, multinational corporations ("MNCs") operating in developed markets seem to primarily deploy extensive patent trespass delay tactics with the main goal of reducing their royalty payments. In comparison, large firms in emerging markets ("LFEs") and small- to medium-sized enterprises ("SMEs"), especially the "long tail" of microvendors, seek to avoid payment altogether. The main conclusion of the study is that patent trespass is a significant phenomenon, which deserves as much attention from courts and policymakers as the patent holdup narrative. Our study recommends moving towards a new holistic framework in policymaking -- one that grasps the asymmetric bargaining power that may exist between patent holders and technology implementers.