Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Wednesday, November 10, 2010

Injunctions, Hold-Up, and Patent Royalties

Posted by D. Daniel Sokol

Casrl Shapiro (Berkeley Hass School of Business and DOJ) discusses Injunctions, Hold-Up, and Patent Royalties.

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.

http://lawprofessors.typepad.com/antitrustprof_blog/2010/11/injunctions-hold-up-and-patent-royalties-.html

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