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A large theoretical literature asserts that standard-essential patents (SEPs) allow
their owners to “hold up” innovation by charging fees that exceed their incremental
contribution to a final product. We evaluate two central, interrelated predictions
of this SEP holdup hypothesis: (1) SEP-reliant industries should experience
more stagnant quality-adjusted prices than non-SEP-reliant industries; and (2)
court decisions that reduce the excessive power of SEP holders should accelerate
innovation in SEP-reliant industries.We find no empirical support for either prediction. Indeed, SEP-reliant industries have the fastest quality-adjusted price
declines in the U.S. economy.
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