Standard Essential Patents: Who is Really Holding Up (and When)?

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper analyzes the effect of injunctions on royalty negotiations for standard essential patents. We develop a model in which courts grant injunctions only when they have sufficient evidence that the prospective licensee is unwilling, in line with the way we understand Courts to operate in Europe. In such a framework the prospective licensee has a powerful strategic tool: the offers that he makes to the patent holder will affect the royalty rate that the Court may adopt as well as the probability of being subject to injunctions (and the liability for litigation costs). We find that despite the availability of injunctions, the holder of a sufficiently weak patent will end up accepting below FRAND rates, in particular when litigation cost are high. We also find that the prospective licensee will sometimes prefer to litigate and the holder of a sufficiently strong patent will always end up in litigation by rejecting offers below FRAND. This arises in particular when the prospective licensee has little to fear from being found unwilling, namely when the trial takes time (so that the threat of injunctions is less powerful),andwhen litigation costs are low. Importantly, we thus find that hold up (royalties above the fair rate) as well as reverse hold up (royalties below the fair rate) may arise in equilibrium. Terms of use: Documents in© The Authors. All rights reserved. No part of this paper may be reproduced without the permission of the authors. AbstractThis paper analyzes the eect of injunctions on royalty negotiations for standard essential patents. We develop a model in which courts grant injunctions only when they have sucient evidence that the prospective licensee is unwilling, in line with the way we understand Courts to operate in Europe. In such a framework the prospective licensee has a powerful strategic tool: the oers that he makes to the patent holder will aect the royalty rate that the Court may adopt as well as the probability of being subject to injunctions (and the liability for litigation costs). We nd that despite the availability of injunctions, the holder of a suciently weak patent will end up accepting below FRAND rates, in particular when litigation cost are high. We also nd that the prospective licensee will sometimes prefer to litigate and the holder of a suciently strong patent will always end up in litigation by rejecting oers below FRAND. This arises in particular when the prospective licensee has little to fear from being fou...

A Welfare Economic Interpretation of FRAND

“…Our paper sheds light on the recent growing literature on litigation issues related to FRAND compensation (e.g. Ratliff and Rubinfeld 2013;Langus et al 2013;Sidak 2015;Choi 2016). These papers study how the royalty is determined in the bargaining under the shadow of FRAND determination by court.…”

Frand Royalties and Injunctions for Standard Essential Patents

“…Otherwise, they would not be deemed essential to begin with. 10 However, we need to distinguish ex ante vs. ex post essentiality. Prior to the adoption of a particular standard, there may have been multiple competing technologies that would have been capable of performing similar functionalities as the one actually included in the standard.…”

International Jurisdiction over Standard-Essential Patents

“…Formal analyses of the FRAND notion are undertaken by e.g. Choi (2014), Froeb et al (2012), Langus et al (2013), and Lerner and Tirole (2015). Layne-Farrar (2017) provides an overview of the economic literature on SEPs.…”