Patent Hold-Up and Antitrust: How A Well-Intentioned Rule Could Retard Innovation

Licensing technology essential to a standard can present a hold-up problem. After designing new products incorporating a standard, a manufacturer could be confronted by an innovator asserting patent rights to essential technology. This hold-up problem can be solved with a damages remedy provided by antitrust or some other body of law, but a damages remedy can reduce the innovator's licensing revenue and thereby retard innovation. The availability of an ex post damages remedy also alters the licensing terms in ex ante bargaining with the result that fewer socially beneficial R&D projects are undertaken.