{"id":6566,"date":"2018-02-13T16:00:04","date_gmt":"2018-02-13T16:00:04","guid":{"rendered":"https:\/\/cpip.gmu.edu\/?p=6566"},"modified":"2026-04-08T19:41:02","modified_gmt":"2026-04-08T19:41:02","slug":"letter-to-antitrust-chief-applauds-dojs-new-evidence-based-approach-to-ip-enforcement","status":"publish","type":"post","link":"https:\/\/blogs.uakron.edu\/ualawip\/2018\/02\/13\/letter-to-antitrust-chief-applauds-dojs-new-evidence-based-approach-to-ip-enforcement\/","title":{"rendered":"[Archived Post] Letter to Antitrust Chief Applauds DOJ’s New Evidence-Based Approach to IP Enforcement"},"content":{"rendered":"

A group of judges, former judges and government officials, law professors and economists with expertise in antitrust law and patent law sent a letter to Assistant Attorney General Makan Delrahim<\/a> earlier today applauding his recent announcements that the Antitrust Division of the Department of Justice (DOJ) would now take a balanced, evidence-based approach in applying antitrust law to patent licensing, especially to patented innovations that have been contributed to technological standards.<\/p>\n

Signatories to the letter include Judge Douglas H. Ginsburg of the D.C. Circuit, former Chief Judge Paul Michel of the Federal Circuit, former FTC Commissioner Joshua D. Wright, and former Director of the U.S. Patent & Trademark Office David Kappos, among others.<\/p>\n

A few weeks after his confirmation this past September, AAG Delrahim delivered remarks<\/a> at a conference held at the USC Gould School of Law in Los Angeles, California. The comments signaled a major shift in intellectual property (IP) policy for the Antitrust Division from the policies pursued by the previous Obama Administration. Indeed, AAG Delrahim pointed out that he is the first head of the Antitrust Division to be a registered patent attorney, and his plans for protecting free market competition in the IP licensing realm reflected a robust understanding of what drives our innovation economy.<\/p>\n

AAG Delrahim indicated that antitrust enforcers had \u201cstrayed too far\u201d in protecting the interests of implementers of patented technology at the expense of innovators who create the technology in the first place. Such \u201cmisapplication of the antitrust laws,\u201d he said, \u201ccould undermine the process of dynamic innovation itself.\u201d In particular, AAG Delrahim stated that the recent focus on the \u201cso-called \u2018hold-up\u2019 problem,\u201d where innovators threaten to withhold licenses to implementers, fails to recognize the \u201cmore serious risk\u201d of the \u201chold-out problem,\u201d where implementers threaten to use the technology without taking licenses from innovators. AAG Delrahim explained that the \u201cone-sided focus on the hold-up issue\u201d posed a \u201cserious threat to the innovative process.\u201d<\/p>\n

Last month, a group of industry representatives sent a letter<\/a> to AAG Delrahim expressing concerns over the Antitrust Division\u2019s new approach to IP licensing. The letter claimed that \u201cpatent hold-up is real, well documented, and harming US industry and consumers,\u201d and it argued that the hold-out problem did not raise similar competition law issues. Remarkably, the industry representatives did not offer one citation to back up their broad claims about the supposed harm from \u201cpatent hold-up\u201d or lack of harm from patent hold-out. Given the data connecting<\/a> stable and effective patent rights and economic growth, the burden should be on the advocates for the \u201cpatent hold-up\u201d theory to produce at least some evidence to support their position. Thankfully, AAG Delrahim made clear that he will let the evidence be his guide.<\/p>\n

To that end, the letter submitted today<\/a> by judges, government officials, legal academics, and economists points out the glaring omissions in the letter by the industry representatives: The claims about \u201cpatent hold-up\u201d are merely theoretical, and they are \u201cinconsistent with actual market data.\u201d Moreover, today\u2019s letter notes that the implications of the \u201cpatent hold-up\u201d theory are testable, and that the empirical studies to date have failed to show that innovators are harming consumers or inhibiting innovation. To bolster its claims, the letter includes an appendix of rigorous empirical studies that directly contradict the \u201cpatent hold-up\u201d theory proffered by the industry representatives.<\/p>\n

Read the letter below or download it here: Letter to AAG Delrahim<\/a><\/p>\n

***<\/p>\n

Letter<\/h2>\n

February 13, 2018<\/p>\n

Assistant Attorney General Makan Delrahim
\nDepartment of Justice Antitrust Division
\n950 Pennsylvania Ave. NW
\nWashington, DC 20530-0001<\/p>\n

Dear Assistant Attorney General Delrahim,<\/p>\n

As judges, former judges and government officials, legal academics and economists who are experts in antitrust and intellectual property law, we write to express our support for your recent announcement that the Antitrust Division of the Department of Justice will adopt an evidence-based approach in applying antitrust law equally to both innovators who develop and implementers who use technological standards in the innovation industries.<\/p>\n

We disagree with the letter recently submitted to you on January 24, 2018 by other parties who expressed their misgivings with your announcement of your plan to return to this sound antitrust policy. Unfortunately, their January 24 letter perpetuates the long-standing misunderstanding held by some academics, policy activists, and companies, who baldly assert that one-sided \u201cpatent holdup\u201d is a real-world problem in the high-tech industries. This claim rests entirely on questionable models that predict that opportunistic behavior in patent licensing transactions will result in higher consumer prices. These predictions are inconsistent with actual market data in any high-tech industry.<\/p>\n

It\u00a0bears emphasizing that no empirical study has demonstrated that a patent-owner\u2019s request for injunctive relief after a finding of a defendant\u2019s infringement of its property rights has ever resulted either in consumer harm or in slowing down the pace of technological innovation. Given the well understood role that innovation plays in facilitating economic growth and well-being, a heavy burden of proof rests on those who insist on the centrality of \u201cpatent holdup\u201d to offer some tangible support for that view, which they have ultimately failed to supply in the decade or more since that theory was first propounded. Given the contrary conclusions in economic studies of the past decade, there is no sound empirical basis for claims of a systematic problem of opportunistic \u201cpatent holdup\u201d by owners of patents on technological standards.<\/p>\n

Several empirical studies demonstrate that the observed pattern in high-tech industries, especially in the smartphone industry, is one of constant lower quality-adjusted prices, increased entry and competition, and higher performance standards. These robust findings all contradict the testable implications of \u201cpatent holdup\u201d theory. The best explanation for this disconnect between the flawed \u201cpatent holdup\u201d theory and overwhelming weight of the evidence lies in the institutional features that surround industry licensing practices. These practices include bilateral licensing negotiations, and the reputation effects in long-term standards activities. Both support a feed-back mechanism that creates a system of natural checks and balances in the setting of royalty rates. The simplistic models of \u201cpatent holdup\u201d ignore all these moderating effects.<\/p>\n

Of even greater concern are the likely negative social welfare consequences of prior antitrust policies implemented based upon nothing more than the purely theoretical concern about opportunistic \u201cpatent holdup\u201d behavior by owners of patented innovations incorporated into technological standards. For example, those policies have resulted in demands to set royalty rates for technologies incorporated into standards in the smartphone industry according to particular components in a smartphone. This was a change to the longstanding industry practice of licensing at the end-user device level, which recognized that fundamental technologies incorporated into the cellular standards like 2G, 3G, etc., optimize the entire wireless system and network, and not just the specific chip or component of a chip inside a device.<\/p>\n

In support, we attach an Appendix of articles identifying the numerous substantive and methodological flaws in the \u201cpatent holdup\u201d models. We also point to rigorous empirical studies that all directly contradict the predictions of the \u201cpatent holdup\u201d theory.<\/p>\n

For these reasons, we welcome your announcement of a much-needed return to evidence-based policy making by antitrust authorities concerning the licensing and enforcement of patented innovations that have been committed to a technological standard. This sound program ensures balanced protection of all innovators, implementers, and consumers. We are confident that consistent application of this program will lead to a vibrant, dynamic smartphone market that depends on a complex web of standard essential patents which will continue to benefit everyone throughout the world.<\/p>\n

Sincerely,<\/p>\n

Jonathan Barnett
\nProfessor of Law
\nUSC Gould School of Law<\/p>\n

Ronald A. Cass
\nDean Emeritus,
\nBoston University School of Law
\nFormer Vice-Chairman and Commissioner,
\nUnited States International Trade Commission<\/p>\n

Richard A. Epstein
\nLaurence A. Tisch Professor of Law,
\nNew York University School of Law
\nJames\u00a0Parker Hall Distinguished Service Professor of Law Emeritus,
\nUniversity of Chicago Law School<\/p>\n

The Honorable Douglas H. Ginsburg
\nSenior Circuit Judge,
\nUnited States Court of Appeals for the District of Columbia Circuit, and
\nProfessor of Law,
\nAntonin Scalia Law School
\nGeorge Mason University<\/p>\n

Justin (Gus) Hurwitz
\nAssistant Professor of Law
\nUniversity of Nebraska College of Law<\/p>\n

David J. Kappos
\nFormer Under Secretary of Commerce and Director
\nUnited States Patent & Trademark Office<\/p>\n

The Honorable Paul Michel
\nChief Judge (Ret.),
\nUnited States Court of Appeals for the Federal Circuit<\/p>\n

Damon C. Matteo
\nCourse Professor,
\nGraduate School of Economics and Management
\nTsinghua University in Beijing
\nChief Executive Officer,
\nFulcrum Strategy<\/p>\n

Adam Mossoff
\nProfessor of Law
\nAntonin Scalia Law School
\nGeorge Mason University<\/p>\n

Kristen Osenga
\nProfessor of Law
\nUniversity of Richmond School of Law<\/p>\n

David J. Teece
\nThomas W. Tusher Professor in Global Business
\nHaas School of Business
\nUniversity of California at Berkeley<\/p>\n

Joshua D. Wright
\nUniversity Professor,
\nAntonin Scalia Law School
\nGeorge Mason University
\nFormer Commissioner,
\nFederal Trade Commission<\/p>\n

Appendix<\/h3>\n

Richard A. Epstein & Kayvan Noroozi, Why Incentives for Patent Hold Out Threaten to Dismantle FRAND and Why It Matters, <\/em>Berkeley Tech. L. Rev. (forthcoming), https:\/\/ssrn.com\/abstract=2913105<\/a><\/p>\n

Anne Layne-Farrar, Why Patent Holdout is Not Just a Fancy Name for Plain Old Patent Infringement<\/em>, CPI North American Column (Feb. 2016), https:\/\/www.competitionpolicyinternational.com\/wp-content\/uploads\/2016\/02\/North-America-Column-February-Full.pdf<\/a><\/p>\n

Anne Layne-Farrar, Patent Holdup and Royalty Stacking<\/em> Theory and Evidence: Where Do We Stand After 15 Years of History?<\/em>, OECD Intellectual Property and Standard Setting (Nov. 18, 2014), http:\/\/www.oecd.org\/officialdocuments\/publicdisplaydocumentpdf\/?cote=DAF\/COMP\/WD%282014%2984&doclanguage=en<\/a><\/p>\n

Alexander Galetovic & Stephen Haber, The Fallacies of Patent Holdup Theory<\/em>, 13 J. Comp. L. & Econ.,\u00a01 (2017), https:\/\/academic.oup.com\/jcle\/article\/13\/1\/1\/3060409<\/a><\/p>\n

Alexander Galetovic, Stephen Haber, & Lew Zaretzki, An Estimate of the Average Cumulative Royalty Yield in the World Mobile Phone Industry: Theory, Measurement and Results <\/em>(Feb. 7, 2018), https:\/\/hooverip2.org\/working-paper\/wp18005<\/a><\/p>\n

Alexander Galetovic, Stephen Haber, & Ross Levine, An Empirical Examination of Patent Hold-Up<\/em> (Nat\u2019l Bureau of Econ. Research, Working Paper No. 21090, 2015), http:\/\/www.nber.org\/papers\/w21090.pdf<\/a><\/p>\n

Douglas H. Ginsburg, Koren W. Wong-Ervin, & Joshua Wright, The Troubling Use of Antitrust to Regulate FRAND Licensing<\/em>, CPI Antitrust Chronicle (Oct. 2015), https:\/\/www.competitionpolicyinternational.com\/assets\/Uploads\/GinsburgetalOct-151.pdf<\/a><\/p>\n

Douglas H. Ginsburg, Taylor M. Ownings, & Joshua D. Wright, Enjoining Injunctions: The Case Against Antitrust Liability for Standard Essential Patent Holders Who Seek Injunctions<\/em>, The Antitrust Source (Oct. 2014), https:\/\/ssrn.com\/abstract=2515949<\/a><\/p>\n

Gerard Llobet & Jorge Padilla, The Optimal Scope of the Royalty Base in Patent Licensing<\/em>, 59 J. L. & Econ. 45 (2016), https:\/\/ssrn.com\/abstract=2417216<\/a><\/p>\n

Keith Mallinson, Theories of Harm with SEP Licensing Do Not Stack Up<\/em>, IP Fin. Blog (May 24, 2013), http:\/\/www.ip.finance\/2013\/05\/theories-of-harm-with-sep-licensing-do.html<\/a><\/p>\n

Jorge Padilla & Koren W. Wong-Ervin, Portfolio Licensing to Makers of Downstream End-User Devices: Analyzing Refusals to License FRAND-Assured Standard-Essential Patents at the Component Level<\/em>, 62 The Antitrust Bulletin 494 (2017), https:\/\/doi.org\/10.1177\/0003603X17719762<\/a><\/p>\n

Jonathan D. Putnam & Tim A. Williams, The Smallest Salable Patent-Practicing Unit (SSPPU): Theory and Evidence <\/em>(Sept. 2016), https:\/\/ssrn.com\/abstract=2835617<\/a><\/p>\n

Gregory Sidak, The Antitrust Division\u2019s Devaluation of Standard-Essential Patents<\/em>, 104 Geo. L.J. Online 48 (2015), https:\/\/georgetownlawjournal.org\/articles\/161\/antitrust-division-s-devaluation-of\/pdf<\/a><\/p>\n

Joanna Tsai & Joshua D. Wright, Standard Setting, Intellectual Property Rights, and the Role of Antitrust in Regulating Incomplete Contracts<\/em>, 80 Antitrust L.J. 157 (2015), https:\/\/ssrn.com\/abstract=2467939<\/a><\/p>\n

Joshua D. Wright, SSOs, FRAND, and Antitrust: Lessons from the Economics of Incomplete Contracts<\/em>,<\/em> 21 Geo. Mason L. Rev. 791 (2014), http:\/\/www.georgemasonlawreview.org\/wp-content\/uploads\/2014\/06\/Wright-Website-Version.pdf<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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