An Empirical Test of Patent Hold-Out Theory: Evidence from Litigation of Standard Essential Patents

Abstract

The theory of patent “hold-out” posits that frictions in the market for licensing standard-essential patents (SEPs) provide incentive for prospective licensees to opportunistically delay taking licenses. We derive empirically testable predictions from the literature supporting hold-out theory—namely that hold-out should be positively associated with the size and international breadth of licensors’ SEP portfolios, but negatively associated with the “quality” of licensors’ SEPs—and we test those predictions using measures of pre- and in-litigation hold-out constructed from information disclosed in U.S. SEP cases filed 2010-2019. We find some evidence of an association between in-litigation hold-out and both SEP portfolio size and patent quality; however, we find no evidence associating pre- or in-litigation hold-out with the international breadth of SEP rights. Overall, our results provide little empirical support for hold-out theory, particularly in the context of pre-litigation licensing negotiations, which are the literature’s primary focus to date.