Production-Driven versus Revenue-Driven Licensing

Nov 20, 2012

A complainant can establish the economic prong of the domestic industry requirement by demonstrating that it has made “substantial investments in the exploitation” of an asserted patent, including licensing investments. In consideration of whether such investments should be considered “substantial,” the Commission has drawn the distinction between “production-driven” licensing activities versus “revenue-driven” ones. 

This distinction has a solid foundation in economics. In its 2011 report on innovation, the Federal Trade Commission noted that revenue-driven licensing targets existing production in the market, which can lead to economic holdup and excessive royalties. Edgeworth economists have evaluated these issues in the context of a domestic industry analysis, including:

  • Does the complainant have any products protected by the asserted patents on the market, or is it purely engage in licensing activities?
  • To what extent has the complainant engaged in ex-ante, production-driven licensing activities, e.g., seeking partnerships for its patented technologies to create new products?
  • Complainants have incentives to implement forward-looking strategies.  How should past licensing and litigation expenses, which may be incurred with “an eye toward” influencing future litigation (including the present proceeding), be evaluated in the context of the economic prong of a domestic industry analysis?

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