• KDI Journal of Economic Policy
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• v.42 no.2
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• pp.1-30
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• 2020

This paper analyzes how injunctions relate to patent hold-up problems. To this end, we present a simple model of licensing negotiations between a patent holder and a downstream firm in the shadow of litigation. More specifically, we consider the situation in which an injunction is granted as a matter of course if a patent is found valid and infringed upon in litigation, but the patent holder may be under-compensated due to aspects of the patent remedy system other than injunctions. We show that if the downstream user is unaware of the patent before any investment in initially designing its product, the patent hold-up problems created by injunction threats are worrisome when (i) the redesign process is costly, (ii) the degree of patent protection (by aspects of the patent remedy system other than injunctions) is sufficiently strong and (iii) the injunction is requested not to practice the patented technology exclusively but to collect excessive patent royalties. Even if the downstream user is aware of the patent before the initial investment, the patent hold-up problems do not disappear. The findings here imply that a discretionary approach is required towards denying injunctions against patent infringement. If the degree of patent protection is not sufficiently strong, denying injunctions can exacerbate the under-compensation problem. However, once patent protection improves enough (not necessarily perfectly), we may see a surge of patent hold-up problems, and it would be better to apply alternative patent remedies in place of injunctions when necessary. Lastly, we discuss several possible alternatives to injunctions and their pros and cons.

• Journal of Legislation Research
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• no.44
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• pp.571-610
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• 2013

The current patent system is more often used for defensive purposes to exclude others' use or as a means to hold unfair strong positions in negotiations rather than for the original purpose as the dissemination and active use of useful technology. An injunction together with a damage is an important remedy for patent infringements. However, unlike a claim for damages, injunctions do not require the subjective requirement of intent and negligence or the occurrence of loss. If the validity of the patent and the fact of infringement are confirmed, automatically injunctions are issued without consideration of other circumstances. So a patent holder would exclude others' use and have a powerful position in negotiations because of injunctions for patent infringements. Therefore, those injunctions for patent infringements should be flexibly restricted according to cases under the premise to ensure fair compensation for the patent owner, rather than absolutely admitting injunctions for patent infringements like now. If then, it would serve the use of a useful technology and industrial development as the purpose of the patent system. First of all, judgments for preliminary injunctions should be strict and by deliberate decision on the merits permanent injunctions should be determined. In addition, it is needed that court's discretion possible to considerate 'the need for an injunction'. When the courts judge 'the need for an injunction', 'whether a patent holder has implemented a patent invention, the possibility of monetary compensation and the ability of the infringer for damages, a patent holder's intent to license and whether an injunction has been used as a weapon of negotiation, the proportion of patent technology in the entire products, the characteristics of patent technology and the possibility of patent invalidity, the competitive relationship for market share, the public interests and gains and losses between the parties and so on' should be considered. After these judgements, if 'the need for an injunction' is not approved, a patent owner would be protected by post-monetary compensation. However, because damages are related to illegal conducts in the past, in the case that an injunction is restrained, measures to ensure the legal implementation in the future are needed. It is primarily desirable that reasonable royalty is estimated throughout private negotiations between parties, but if agreement between the parties does not occur, patent owner should be able to claim the royalty for future.