Demystifying Patent Holdup

By Cotter, Thomas F.; Hovenkamp, Erik et al. | Washington and Lee Law Review, Fall 2019 | Go to article overview

Demystifying Patent Holdup


Cotter, Thomas F., Hovenkamp, Erik, Siebrasse, Norman, Washington and Lee Law Review


(ProQuest: ... denotes formulae omitted.)

Table of Contents

I.Introduction....................1503

II.Injunctions, Classic Holdup, and Patent Holdup....................1511

A. Injunctions....................1511

B. Classic Holdup....................1514

C. Patent Holdup....................1517

III. Modeling Patent Holdup....................1529

A. The Model....................1529

B. Examples....................1533

1. Sunk Costs....................1533

2. Increase in Costs of Adopting the Alternative....................1535

3. Forgone Benefits....................1537

4. Injunctions and "Lag Time"....................1538

5. More Complex Cases....................1539

6. Further Observations....................1541

IV. Some Possible Critiques....................1543

A. Is Patent Holdup Really Holdup?....................1544

B. Patent Holdup Is Not a Problem, Because It Is Not Systemic....................1546

C. Holdout Is Worse Than Holdup....................1548

D. Other IP Doctrines That Mitigate Holdup Risks....................1553

V.Conclusion....................1560

VI.Technical Appendix....................1562

I. Introduction

For more than ten years now, patent infringement litigation filed by owners of standard-essential patents (SEPs)1 and by patent assertion entities (PAEs)2 has caused courts and other decision makers throughout the world to reconsider the conventional practice of awarding the prevailing patent owner a permanent injunction (as opposed to an ongoing royalty for prospective infringing sales). In the United States, for example, the Supreme Court in its 2006 decision in eBay Inc. v. MercExchange, L.L.C.3 rejected the long-held view that patent owners are entitled to injunctions almost as a matter of right, and ruled instead that courts should consider four factors (irreparable harm, inadequacy of legal remedies, the balance of hardships, and the public interest) to determine whether injunctive relief is appropriate.4

As a result, U.S. courts today rarely award injunctions to SEP owners and PAEs.5 Meanwhile, courts in other countries have also made it more difficult for SEP owners to obtain injunctions, although the standards used to decide whether an injunction is warranted in an SEP case-grounded variously in antitrust law, contract law, the law of patent remedies, or the civil law doctrine of abuse of right-are hardly uniform.6 Moreover, courts outside the United States, for the most part, have continued routinely granting injunctions in other patent disputes;7 a practice that leads some observers to worry that, just when trolling behavior has started to decline in the United States, countries such as Germany and China (or possibly Europe's soon-to-be-up-and-running Unified Patent Court) will become troll magnets.8

On the other side of the coin, some analysts argue that the perceived abuses that have convinced U.S. authorities to deny injunctions in certain types of cases are a myth, and that it's U.S. practice that has taken a wrong turn post-aBąy. Just this past year, for example, the newly appointed head of the U.S. Department of Justice's Antitrust Division has made a series of speeches critiquing courts' reluctance to grant injunctions in SEP cases,9 and legislation has been introduced in Congress that, if enacted, would overturn the eBay decision.10

These differing views over whether, or when, courts should award injunctions in patent disputes often reflect the speaker's understanding of the frequency with which patent owners engage in a practice referred to as "patent holdup." To see why, consider the fact that SEP owners, PAEs, and many other patent owners often are uninterested in using their patent rights to exclude infringers from the market; they are, instead, willing to license these rights for the right price, and a credible threat of obtaining an injunction enhances the owner's ability to negotiate a favorable deal. …

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