Patent Holdup and Royalty Stacking

Name: Patent Holdup and Royalty Stacking
Cite: 85 Tex. L. Rev. 1991
Year: 2007
Bluebook cite: Mark A. Lemley & Carl Shapiro, Patent Holdup and Royalty Stacking, 85 Tex. L. Rev. 1991 (2007).
Author: Mark A. Lemley & Carl Shapiro
URL: 85 TXLR 1991
Item Type: article
Summary: Article studies â€œseveral interconnected problems that arise under the current U.S. patent system when a patent covers one component or feature of a complex product.â€ Specifically, the Article first uses bargaining theory to show that â€œthe threat to obtain a permanent injunction greatly enhances the patent holder's negotiating power, leading to royalty rates that exceed a natural benchmark range based on the value of the patented technology and the strength of the patent. Such royalty overcharges are especially great for weak patents covering a minor feature of a product with a sizeable price/cost margin, including products sold by firms that themselves have made substantial research and development investments. These royalty overcharges do not disappear even if the allegedly infringing firm is fully aware of the patent when it initially designs its product. However, the holdup problems caused by the threat of injunctions are reduced if courts regularly grant stays to permanent injunctions to give defendants time to redesign their products to avoid infringement when this is possible.â€

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