Reply Patent Holdup and Royalty Stacking

We argued in our article, Patent Holdup and Royalty Stacking, that the threat to obtain a permanent injunction can greatly enhance a patent holder’s negotiating power, leading to royalty rates that exceed a benchmark level based on the value of the patented technology and the strength of the patent. Our analysis showed that such problems are especially likely to arise for patents covering a minor feature of a complex product developed independently by the infringing party. John Golden, in his extensive commentary on our article, argues against a “categorical rule” that denies injunctive relief to broad categories of patent holders. In doing so, he states that he is responding to our article, which he reads as “suggesting that as a matter of good economic policy, permanent injunctions should commonly be denied when they are sought by ‘noncompeting patent holders.’” We do not, in fact, advocate any “categorical rule.” To the contrary, we stress the advantages of equitable discretion, and even in cases of noncompeting patent holders who have substantial holdup power, we favor stays on permanent injunctions, rather than the outright denial of such injunctions, in cases where the infringing party can design around the patent at moderate cost while the injunction is stayed. Golden goes on, in a section entitled “Flaws in Lemley and Shapiro’s Theoretical Approach,” to critique our approach to analyzing prelitigation royalty negotiations, “pointing out specific defects that make their approach