Standard Essential Patents: Who is Really Holding Up (and When)?

Gregor Langus

Charles River Associates

Vilen Lipatov

Compass Lexecon Brussels

Damien Neven

Graduate Institute of International and Development Studies (IHEID)

February 22, 2013

This paper analyzes the effect of injunctions on royalty negotiations for standard essential patents. We develop a model in which courts grant injunctions only when they have sufficient evidence that the prospective licensee is unwilling, in line with the way we understand Courts to operate in Europe. In such a framework the prospective licensee has a powerful strategic tool: the offers that he makes to the patent holder will affect the royalty rate that the Court may adopt as well as the probability of being subject to injunctions (and the liability for litigation costs). We find that despite the availability of injunctions, the holder of a sufficiently weak patent will end up accepting below FRAND rates, in particular when litigation cost are high. We also find that the prospective licensee will sometimes prefer to litigate and the holder of a suciently strong patent will always end up in litigation by rejecting offers below FRAND. This arises in particular when the prospective licensee has little to fear from being found unwilling, namely when the trial takes time (so that the threat of injunctions is less powerful), and when litigation costs are low. Importantly, we thus find that hold up (royalties above the fair rate) as well as reverse hold up (royalties below the fair rate) may arise in equilibrium.

Number of Pages in PDF File: 34

Keywords: standard essential patent, injunctions, hold up, reverse hold up

JEL Classification: K41, L49, O34

Open PDF in Browser Download This Paper

Date posted: February 23, 2013  

Suggested Citation

Langus, Gregor and Lipatov, Vilen and Neven, Damien, Standard Essential Patents: Who is Really Holding Up (and When)? (February 22, 2013). Available at SSRN: https://ssrn.com/abstract=2222592 or http://dx.doi.org/10.2139/ssrn.2222592

Contact Information

Gregor Langus
Charles River Associates ( email )
81 Avenue Louise
B-1050 Brussels
Vilen Lipatov (Contact Author)
Compass Lexecon Brussels ( email )
23 Square de Meeus
Bruxelles, 1000
Damien Neven
Graduate Institute of International and Development Studies (IHEID)
Rue de Lausanne 132
P.O. Box 136
Geneva, 1211
Feedback to SSRN

Paper statistics
Abstract Views: 1,599
Downloads: 326
Download Rank: 71,804
Paper comments
No comments have been made on this paper