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Research On Patents Described By M.A. Lemley And Colleagues

Publication Date: 
November 26, 2007
Pharma Business Week

Professor Mark A. Lemley and colleagues are quoted in Pharma Business Week about their Texas Law Review article (Patent holdup and royalty stacking. Texas Law Review, 2007;85(7):1991-2049):

"Our analysis applies to cases involving reasonable royalties but not lost profits. First, we show using bargaining theory 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. 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. Second, we show how holdup problems are magnified in the presence of royalty stacking, i.e., when multiple patents read on a single product. Third, using third-generation cellular telephones and Wi-Fi as leading examples, we 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. Fourth, we discuss the use of ''reasonable royalties'' to award damages in patent infringement cases. We report empirical results regarding the measurement of reasonable royalties by the courts and identify various practical problems that tend to lead courts to overestimate reasonable royalties in the presence of royalty stacking," wrote M.A. Lemley and colleagues.