Patent Enforcement in an Uncertain World: Widespread Infringement and the Paradox of Value for Patented Technologies
Michael P. Akemann, John A. Blair & David J. Teece
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The extent of the property rights bestowed by the issuance of a patent is inherently unclear (at least initially) and often context dependent. Therefore, the fuzzy boundaries of patent rights typically come into focus only as litigation or licensing activities build a legal and market-based picture of those boundaries. Given these fuzzy boundaries, the transaction costs associated with attempting to enforce patents rights in the context of widespread infringement can sometimes have important implications for the inferences that can be drawn from observed license rates. Specifically, when infringement is widespread, patent owners might have difficulties establishing licensing rates that reflect the true value of their patents. We outline a number of possible reverse bandwagon effects that suggest that the set of license rates observed in circumstances of widespread infringement might, in some circumstances, significantly understate the value of the patented technology due to transaction cost considerations and litigation-related risks.
When using observed license rates to help determine a reasonable royalty in litigation, we describe a “certainty adjustment” that is often considered to account for the fact that the hypothetical negotiation occurs under the assumption that the patents at issue are valid, infringed, and enforceable. Such a certainty adjustment can help account for the fact that observed license rates might be discounted due to uncertainty or disagreement about validity, infringement, or enforceability. In the context of widespread infringement, which can sometimes lead to the further depression of observed license rates relative to actual value, an even greater adjustment might be warranted to account for this greater degree of rate depression. Hence, observed prices for patent rights might not reflect a reasonable royalty in meaningful ways, sometimes making it difficult to assess the value of inventions that achieve widespread adoption ahead of the successful rollout of a licensing program.
Cite as
Michael P. Akemann, John A. Blair & David J. Teece, Patent Enforcement in an Uncertain World: Widespread Infringement and the Paradox of Value for Patented Technologies, 1 Criterion J. on Innovation 861 (2016).
Michael P. Akemann is a Managing Director at Berkeley Research Group, LLC. He graduated summa cum laude from the University of California at San Diego with a B.A. in Economics and Political Science. Dr. Akemann also holds an M.A. and a Ph.D. in economics from the University of California at Los Angeles, where he focused on Industrial Organization and Game Theory. He has published articles on a variety of issues in the field of economics, including analyses of exclusive dealing contracts, other vertical contractual restraints, and complex damages issues. These publications have appeared in a number of outlets, including the Journal of Development Economics, the Journal of Corporation Law, Intellectual Asset Management Magazine, and the Trade Practices Law Journal. Dr. Akemann testifies regularly as an expert witness on intellectual property damages, antitrust liability and damages, and other complex damages issues.
John A. Blair is a managing director at Berkeley Research Group, specializing in information technology, financial services, intellectual property, and antitrust matters. His practice and research interests focus on the intersection between IT innovation, IP valuation, and business strategy and analysis. Prior to joining BRG, Mr. Blair was a cofounder of Kenamea, an infrastructure software company that opened the commercial use of event-driven Web communications to transform user experience and productivity, now standardized as Web 2.0. He previously served as a partner at Regis McKenna Inc., and at Booz Allen and Hamilton in their information technology practice groups, as a consultant and strategic advisor to government agencies and executive management at some of the world's largest technology firms, including IBM, Apple, Adobe, and Oracle. Prior to coming to the United States, Mr. Blair cofounded Hypertec Pty. Ltd., one of Australia's most successful computer product design and manufacturing firms, and led the software engineering team that developed and brought to market the Dulmont Magnum, the world's first 16-bit laptop computer. Mr. Blair has a B.S. in electrical engineering with a major in computer science (honors, first class) from the University of New South Wales, and an MBA from Stanford University.
David J. Teece is the Tusher Professor of Global Business at the Haas School of Business, University of California, Berkeley and Director of the Institute for Business Innovation. He received his BA and MComm (Hons1) at the University of Canterbury and his Ph.D. in economics from the Wharton School at the University of Pennsylvania. He teaches at the MBA, Ph.D., and executive levels. He is also Chairman of Berkeley Research Group, a global expert services and consulting firm which, under Teece’s leadership, has grown in ten years to over 1,000 employees and over 40 offices worldwide.
