Published: 8/10/06
Publication: Texas Law Review
This article used bargaining theory to show “that the 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.” Lemley and Shapiro also “show how holdup problems are magnified in the presence of royalty stacking, i.e., when multiple patents read on a single product.” They used third-generation cellular telephones and Wi-Fi as leading examples to “illustrate that royalty stacking can become a very serious problem, especially in the standard-setting context where hundreds or even thousands of patents can read on a single product standard.” Lastly, the authors used empirical results regarding the measurement of reasonable royalties by the courts and identified practical problems that “tend to lead courts to overestimate reasonable royalties in the presence of royalty stacking.”