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Abstract

Patent “hold-up” and patent “hold-out” present important, alternative theories for what ails the patent system. Patent “hold-up” occurs when a patent owner sues a company when it is most vulnerable—after it has implemented a technology—and is able wrest a settlement because it is too late for the company to change course. Patent “hold-out” is the practice of companies routinely ignoring patents and resisting patent owner demands because the odds of getting caught are small. Hold-up has arguably predicted the current patent crises, and the ex ante assertion of technology patents whether in the smartphone war, standards, or patent “troll” context. Hold-up theory has been embraced by thought leaders and fueled the current drive by Congress and President Obama to reform the patent system. This Article makes the counterintuitive case that hold-up theory is wrong—or at least incomplete—because it is missing is full consideration of the other side—the side of hold-out. When large companies systematically “hold out” on patentees, they have no choice but to work with efficient patent enforcers, or “trolls.” When small inventors are unfairly disadvantaged in the marketplace, jurors may give them relief in court. Considering hold-out and hold-up together provide a more complete picture than focusing on either theory alone. This perspective reveals surprising pathways to a better patent system, focused on the design, rather than the doctrine, of patent law. Instead of trying to eliminate all technology patents, or to enforce all of them, we should try to price them appropriately and reduce the distortions they produce. Instead of trying to make patent law perfect, we should make it cheaper, more streamlined, and more equitable. To do so, lawmakers should prioritize improving coordination across courts and agencies, reducing costs through early dispositive rulings and valuation, and promoting symmetry between parties and proportionality about the value of a patent through fee- and cost-shifting. Each of these steps would go a long way to curbing both hold-up and hold-out.

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