Published: 10/19/10
Publication: American Law and Economics Review
Carl Shapiro, a leading competition economist and a former Chief Economist in the U.S. Justice Department’s Antitrust Division, applied an economic model which “shows that for weak patents covering a minor feature of a high-margin product that takes time to redesign, a large fraction of negotiated royalties can be attributable to hold-up, not to the value of the patented technology. This finding holds whether or not the downstream firm was aware of the patent prior to making its initial design decision. The model supports the conclusion that the hold-up component of negotiated patent royalties will be reduced or eliminated if the courts, following the Supreme Court’s eBay decision, award reasonable royalties but do not issue injunctions in appropriate cases.”