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


  • Carl Shapiro


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, Oxford University Press, vol. 12(2), pages 509-557.
  • Handle: RePEc:oup:amlawe:v:12:y:2010:i:2:p:509-557

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    References listed on IDEAS

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    Cited by:

    1. CHOI, Jay Pil & GERLACH, Heiko, 2015. "A model of patent trolls," Discussion paper series HIAS-E-9, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    2. 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.
    3. 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.
    4. Chryssoula Pentheroudakis & Justus A. Baron, 2016. "Licensing Terms of Standard Essential Patents: A Comprehensive Analysis of Cases," JRC Working Papers JRC104068, Joint Research Centre (Seville site).
    5. 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.
    6. 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.
    7. Baron, Justus & Pohlmann, Tim & Blind, Knut, 2016. "Essential patents and standard dynamics," Research Policy, Elsevier, vol. 45(9), pages 1762-1773.
    8. Denicolò, Vincenzo & Halmenschlager, Christine, 2012. "Optimal patentability requirements with complementary innovations," European Economic Review, Elsevier, vol. 56(2), pages 190-204.
    9. 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.
    10. 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.
    11. Baron, Justus & Ménière, Yann & Pohlmann, Tim, 2014. "Standards, consortia, and innovation," International Journal of Industrial Organization, Elsevier, vol. 36(C), pages 22-35.
    12. repec:eee:indorg:v:56:y:2018:i:c:p:168-203 is not listed on IDEAS
    13. 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.
    14. 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.
    15. Olena Ivus & Edwin L.-C. Lai, 2017. "Patent Exhaustion Regime and International Production Sharing: Winner and Losers?," CESifo Working Paper Series 6644, CESifo Group Munich.
    16. Ottoz Elisabetta & Cugno Franco, 2012. "Different Rules of Legal-Cost Allocation and Patent Hold-Up," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201216, University of Turin.

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