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Injunctions, Hold-Up, and Patent Royalties-super-1

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  • Carl Shapiro

Abstract

A simple model is developed to study royalty negotiations between a patent holder and a downstream firm whose product is more valuable if it includes a feature covered by the patent. The downstream firm must make specific investments to develop, design, and sell its product before patent validity and infringement will be determined. The hold-up component of the negotiated royalties is greatest for weak patents covering a minor feature of a product with a high margin between price and marginal cost. For weak patents, the hold-up component of negotiated royalties remains unchanged even if negotiations take place before the downstream firm designs its product. The analysis has implications for the use of injunctions in patent infringement cases. Copyright 2010, Oxford University Press.

Suggested Citation

  • Carl Shapiro, 2010. "Injunctions, Hold-Up, and Patent Royalties-super-1," American Law and Economics Review, American Law and Economics Association, vol. 12(2), pages 509-557.
    • Handle: RePEc:oup:amlawe:v:12:y:2010:i:2:p:509-557
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    File URL: http://hdl.handle.net/10.1093/aler/ahq014
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    Cited by:

    1. Baron, Justus & Ménière, Yann & Pohlmann, Tim, 2014. "Standards, consortia, and innovation," International Journal of Industrial Organization, Elsevier, vol. 36(C), pages 22-35.
    2. Jay Pil Choi & Heiko Gerlach, 2018. "A Model Of Patent Trolls," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(4), pages 2075-2106, November.
    3. Jay Pil Choi & Heiko Gerlach, 2017. "A Theory of Patent Portfolios," American Economic Journal: Microeconomics, American Economic Association, vol. 9(1), pages 315-351, February.
    4. Stiglitz, Joseph E., 2015. "Leaders and followers: Perspectives on the Nordic model and the economics of innovation," Journal of Public Economics, Elsevier, vol. 127(C), pages 3-16.
    5. Mathias Dewatripont & Patrick Legros, 2013. "‘Essential’ Patents, FRAND Royalties and Technological Standards," Journal of Industrial Economics, Wiley Blackwell, vol. 61(4), pages 913-937, December.
    6. Bertrand Chopard & Thomas Cortade & Eric Langlais, 2013. "Damage rules and the patent hold-up problem : An analysis of Article L. 615-7," EconomiX Working Papers 2013-37, University of Paris Nanterre, EconomiX.
    7. Turner, John L., 2018. "Input complementarity, patent trolls and unproductive entrepreneurship," International Journal of Industrial Organization, Elsevier, vol. 56(C), pages 168-203.
    8. Blogg, Jonathan, 2020. "The Myths and Facts of Patent Troll and Excessive Payment: Have Non-Practicing Entities (NPEs) Been Overcompensated? - A Commentary," MPRA Paper 100069, University Library of Munich, Germany.
    9. Kwon, Seokbeom, 2020. "How does patent transfer affect innovation of firms?," Technological Forecasting and Social Change, Elsevier, vol. 154(C).
    10. Chryssoula Pentheroudakis & Justus A. Baron, 2016. "Licensing Terms of Standard Essential Patents: A Comprehensive Analysis of Cases," JRC Research Reports JRC104068, Joint Research Centre.
    11. Massimo D'Antoni & Maria Alessandra Rossi, 2014. "Appropriability and Incentives with Complementary Innovations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(1), pages 103-124, March.
    12. Bar, Talia & Kalinowski, Jesse, 2019. "Patent validity and the timing of settlements," International Journal of Industrial Organization, Elsevier, vol. 67(C).
    13. Rey, Patrick & Salant, David, 2012. "Abuse of dominance and licensing of intellectual property," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 518-527.
    14. Ottoz Elisabetta & Cugno Franco, 2012. "Does Banning Side Payments in Patent Settlements Suffice to Fully Protect Consumers?," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201201, University of Turin.
    15. Bessen, James & Neuhäusler, Peter & Turner, John L. & Williams, Jonathan, 2018. "Trends in private patent costs and rents for publicly-traded United States firms," International Review of Law and Economics, Elsevier, vol. 56(C), pages 53-69.
    16. Mezzanotti, Filippo & Simcoe, Timothy, 2019. "Patent policy and American innovation after eBay: An empirical examination," Research Policy, Elsevier, vol. 48(5), pages 1271-1281.
    17. Olena Ivus & Edwin L.-C. Lai, 2017. "Patent Exhaustion Regime and International Production Sharing: Winner and Losers?," CESifo Working Paper Series 6644, CESifo.
    18. Baron, Justus & Pohlmann, Tim & Blind, Knut, 2016. "Essential patents and standard dynamics," Research Policy, Elsevier, vol. 45(9), pages 1762-1773.
    19. Denicolò, Vincenzo & Halmenschlager, Christine, 2012. "Optimal patentability requirements with complementary innovations," European Economic Review, Elsevier, vol. 56(2), pages 190-204.
    20. Jeon, Haejun & Nishihara, Michi, 2018. "Optimal patent policy in the presence of vertical separation," European Journal of Operational Research, Elsevier, vol. 270(2), pages 682-697.
    21. Julie Carlson & Leemore Dafny & Beth Freeborn & Pauline Ippolito & Brett Wendling, 2013. "Economics at the FTC: Physician Acquisitions, Standard Essential Patents, and Accuracy of Credit Reporting," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 43(4), pages 303-326, December.
    22. Elisabetta Ottoz & Franco Cugno, 2015. "Different Rules of Legal-Cost Allocation and Patent Holdup," Research in Law and Economics, in: Economic and Legal Issues in Competition, Intellectual Property, Bankruptcy, and the Cost of Raising Children, volume 27, pages 143-159, Emerald Group Publishing Limited.
    23. Christian Le Bas & Julien Pénin, 2014. "Patents and innovation : Are the brakes broken, or how to restore patents’ dynamic efficiency ?," Working Papers of BETA 2014-02, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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