Patent hold-up

Patent hold-up refers to the conduct of the holder of a essential patent for a standard who exploits the dependency of manufacturers, locked into the standard once their products have been developed, to obtain royalties above the value of its technology or to threaten a sales ban. It is the mirror image of patent hold-out, the conduct of a manufacturer who indefinitely delays the conclusion of a licence. Patent hold-up is the reason for the FRAND undertaking.

The mechanism of patent hold-up

First, standardisation gives the patent a value it would not have had otherwise: once the standard is adopted, the technology can no longer be worked around. Next, manufacturers invest in compliant products before having negotiated all licences, which makes the cost of switching prohibitive. Finally, the holder can use the threat of an injunction, which would halt the sale of an entire product range, to impose a rate reflecting this switching cost rather than the contribution of the invention. The risk is aggravated byroyalty stacking where hundreds of holders own patents on the same standard.

Remedies

The FRAND undertaking given at the time of the essential patent declaration requires the holder to grant licences on fair, reasonable and non-discriminatory terms. The Court of Justice of the European Union held, in the Huawei v ZTE case of 2015, that the holder of a standard-essential patent in a dominant position who seeks an injunction without first alerting the alleged infringer and presenting a written licence offer on FRAND terms may commit an abuse of a dominant position. National courts and the Unified Patent Court have since assessed the conduct of both parties in the negotiation. The judgment is available on the website of the Court of Justice.

Key points

In practice, the accusation of patent hold-up is the central defence of a manufacturer sued by a holder of standard-essential patents. It requires showing that the holder failed in its negotiation obligations, through a non-FRAND offer, a refusal to disclose comparable licences or a hasty action. The firm acts in these disputes for holders and manufacturers, as presented on the page FRAND and standard essential patents counsel.