Protecting Innovation in the Mobile Wireless Ecosystem: Understanding and Addressing “Hold-Out”

Kalyan Dasgupta and David Teece address “hold-out” in the licensing of standards essential patents (SEPs) in mobile cellular communications technology.

They provide examples of implementers such as smartphone manufacturers that can use such mobile technology without having agreed to licenses. Together with frictions in the enforcement process and the increasing propensity to resist licensing by new groups of implementers (i.e., “hold out”), they explain the elevated risk that the licensing marketplace may produce outcomes that are inconsistent with the “balance” that standards development organizations have sought out.

The authors explain that there is a risk that the SEP holders’ obligation to be prepared to make licenses available on fair, reasonable, and non-discriminatory (FRAND) terms can be used to “bound” the worst-case scenario for an implementer—i.e., that it can never do worse than receiving the FRAND royalty. Finally, they discuss how courts and policymakers should sensibly interpret the bounds and limits of the FRAND commitment to respect the overarching goals of “balance” and robust innovation in the ecosystem.

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