Do patent-owners 'hold up' further innovation?
One of the standard arguments of the anti-patent crowd is that patents hinder follow-on innovation by making it risky or costly to build on other people's breakthroughs. There is some evidence for this (see this post from my colleague Charlotte).
However, a new paper challenges this general thesis by looking at whether the outcomes it predicts happen in the real world. If it is true that owners of standard-essential patents (SEPs)—those ones that set up a whole standard used across the marketplace and essential for a large number of follow-on innovators—charge over-the-odds fees and prevent follow-on innovation, then it must also be true that:
- Industries where SEPs predominate are ones with relatively stagnant (quality-adjusted) prices, because new entrant innovators have less chance to bid them down through competition
- Court decisions that reduce the power of SEP holders will lead to more innovation in those sectors
The paper, "An Empirical Examination of Patent Hold-Up" (pdf) finds neither of these to be true:
A large 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 hold-up hypothesis: (1) SEP-reliant industries should experience more stagnant quality-adjusted prices than similar 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.
The principle is nicely illustrated in this chart.
At one point there was more or less of a consensus among libertarians that intellectual property was a good kind of property rights. Nowadays you are more likely to see a proto-consensus against copyright at the very least and often patents as well. I think that emerging evidence means we should keep our minds open.