Product Development with Lurking Patentees

Erik Hovenkamp, Jorge Lemus and John L. Turner

RAND Journal of Economics, 2025, vol. 56, issue 2, 163-183

Abstract: Innovative product developers are often uninformed about relevant patents. Patentees may exploit this by strategically “lurking”—refraining from ex ante licensing in the hope that developers will unwittingly infringe, creating an opportunity for “patent holdup.” We contribute to the literature by introducing a framework to explore when strategic lurking is profitable and how it affects developers' technology decisions. We find that lurking is pervasive in equilibrium, and it may lead to inefficient investment or adoption of inferior technologies. Commitments to license patents on reasonable (or “FRAND”) terms can improve efficiency and benefit all parties.

Date: 2025
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