Injunction frameworks and the licensing of standard-essential patents

We develop a licensing-litigation model to analyze how different injunction frameworks affect bargaining behavior, equilibrium royalties, and litigation outcomes in standard-essential patent (SEP) disputes. Motivated by recent developments in German case law, we compare two legal frameworks that differ only in whether the patent holder's licensing offer conditions the availability of injunctive relief. We show that removing the patent holder's offer from the injunction analysis raises equilibrium royalties and the risk of patent hold-up when courts are sufficiently imprecise in assessing FRAND compliance; when courts are predictable, the two frameworks coincide. Higher royalties arise because SEP holders make more aggressive, non-FRAND, licensing offers, while implementers respond with higher counteroffers to reduce the risk of an injunction. The same mechanism, however, can reduce the incidence of injunctions, so injunction frequency is an imperfect measure of hold-up. Whether the higher royalties raise or lower welfare depends on where the socially optimal royalty lies relative to the rates the two frameworks produce.