Chief Judge Randall Rader: Don’t Be Seduced by the Patent Hold-Up Misnomer

Former CAFC Chief Judge Randall Rader

In his luncheon keynote address to attendees of IPWatchdog’s Patent Master’s Symposium: “Standard Essential Patents: Striking a Balance Between Competition and Innovation” on Tuesday, former Federal Circuit Chief Judge Randall Rader drove home a point made by multiple speakers during the event that the concept of “patent hold-up”—in which innovator companies use SEPs to hold up implementer companies from getting products to market via anti-competitive practices—is “one of the largest misnomers in our discipline.”

Rader recounted his experience representing a small inventor who was attempting to get big tech companies to answer his letters alerting them to the fact that his patent had been adopted into a standard for 4G technology, only to be largely ignored. In his research for the case, Rader attempted to find evidence of the oft-touted practice of “patent hold-up”, which has been cited by sources including the 2013 joint Department of Justice – U.S. Patent and Trademark Office “Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments” as a potential threat to healthy competition in the context of collaborative standards setting. That statement—from which the current Assistant Attorney General for the Antitrust Division of the U.S. Department of Justice, Makan Delrahim, withdrew in December 2018—said in part:

“The owner of [a] patented technology may gain market power and potentially take advantage of it by engaging in patent hold-up, which entails asserting the patent to exclude a competitor from a market or obtain a higher price for its use than would have been possible before the standard was set, when alternative technologies could have been chosen. This type of patent hold-up can cause other problems as well. For example, it may induce prospective implementers to postpone or avoid making commitments to a standardized technology or to make inefficient investments in developing and implementing a standard in an effort to protect themselves. Consumers of products implementing the standard could also be harmed to the extent that the hold-up generates unwarranted higher royalties and those royalties are passed on to consumers in the form of higher prices.”

Right to left: Gene Quinn moderated a panel with David Kappos, F. Scott Kieff and Timothy Syrett

The problem with that analysis, said Rader, is that he could find no evidence of its existence. “What has ever been held up?” Rader asked. “What product not issued or slow-down in manufacturing [due to patent hold-up]? We would all know about it because it would be the primary evidence in every SEP case, but it hasn’t been found. Yet it’s been used as a very significant weapon.”

Earlier in the day, David Kappos, former Director of the USPTO, explained that— although he signed off on the Joint Policy Statement, that it was thoughtfully and heavily negotiated and edited, and that he felt at the time that it was a good document and a compromised agreement—he stepped back after Delrahim’s announcement last year and has now reconsidered his view. “I was defending the IP system given everything we knew at the time,” Kappos said. “I didn’t think the guidelines were anti-innovation; I thought they were balanced. But in stepping back, I realized—between 2013 and 2019 we’ve learned a lot. Multiple empirical studies have shown us that the phenomena on which we based the guidelines — hold-up and royalty stacking — aren’t occurring. There is no evidence of our predictions.”

On the other hand, there are many examples of the “hold-out” phenomenon, said Rader, turning back to his example of the small inventor. The inventor understood immediately when Rader asked what he would do if he were general counsel for Google or Apple instead in this situation. “They don’t have to do anything. The clock is running out on the patent. The strategy has to be to prolong, and that is well-documented,” Rader said.

He concluded:

“Don’t be seduced into thinking hold up has anything to do with this process—it’s a misnomer. Don’t be seduced by terminology that has never been empirically proven and can be disruptive of an orderly process that tends to work. We should be looking at the quality of the IP. The valuation of the technology should be the focus.”