This paper – which can be found here –  focuses on the impact of injunctions, or more specifically the lack of the availability of an injunction, on an innovator’s investment decision. It argues that; “(1) it is possible to measure the impact that a “no injunction” in patent infringement actions will have on innovation investment, and that (2) such a policy will necessarily reduce investment in innovation. The reduction in investment is caused by the delay in receipt of licensing revenues that will result from eliminating the potential for injunctions, because this delay will negatively affect the inventor’s expected return on investment.” It also holds that “that interest awards [as an alternative to injunctions] are inadequate to eliminate the reduced incentive to invest in innovation.”

The paper begins with a disquisition of the relationship between IP and antitrust. “Antitrust and intellectual property law are often said to be compatible in that they are both supposed to encourage innovation. The intellectual property laws do so directly, by creating a period of time in which the inventor can exclude others and exploit its invention, reaping whatever profits are attributable to the invention. The antitrust laws do so less directly, by tolerating this right to exclude.” However, “antitrust laws places limits on the permissible scope of exclusion, and U.S. and foreign enforcers have more recently waded more aggressively into enforcement, particularly regarding SEPs, with views on whether specific tactics may be anticompetitive.”

The author notes that one area in which regulatory authorities have jumped in with both feet relates to the permissibility of an SEP holder to seek injunctive relief. He reviews a number of FTC interventions in the US regarding this topic (even if only in the context of merger reviews and consent orders), and contrasts it with US courts’ conclusions that there is nothing inherently anticompetitive in an SEP holder seeking an injunction. Thankfully for his blood pressure, he does not go into developments under EU law.

The author then looks at the logic of investment on innovation. This investment is supposed to obtain some return (literally, a return on investment or “ROI”). ROI measures the gain or loss generated by an investment relative to the amount of money invested, and is typically used to compare the efficiency of different investments. While this is the main concept in play, he also takes us on a tour of net present value (“NPV” – i.e. a measure of value in which the flow of all future revenue streams is discounted to account for the delay in time over which they will be received) and target rate of return (which, in addition to the time-dimension included in NPV, takes into account the risk of the investment not providing any return).

The goal of this whirlwind tour through basic accounting notions is to set the groundwork for a model that demonstrates how  impediments to the use of injunctions reduce incentives to investment in innovation (Note: apologies for the alliteration. But hey, accounting, business and competition speak…). In particular, the “article does not evaluate the assumption of higher royalty rates [i.e. the traditional concern regarding SEPs], but only the inherent delay caused by the lack of pressure to resolve the case when an injunction is not possible, for example because seeking an injunction has been deterred by the threat of antitrust repercussions.” In particular, if the outcome of a “no injunction” policy is to cause a delay in the outcome of licensing negotiations, then this will impact NPV and, hence, ROI. As a result, at least some investments will not be made.

A possible counter-argument to this is that “an infringer who delays licensing will face the prospect of an interest award that will counteract the impact of that delay, making the inventor “whole” under the law and reestablishing the incentive to invest at the initial stages.” However, “a court-ordered interest rate will never satisfy the return levels required by an inventor” (the reasons for this are too complex to summarise here, but it boils down to an argument that these awards are too low in practice). Hence, “a delay attributable to non-availability of injunctions (…)  will have an adverse effect on the incentive to invest in innovation.

The paper makes a remarkably clear argument (i.e. “with no threat of an injunction, the pressure to conclude a licensing negotiation is off, and licensing negotiations will take more time to complete. This additional time slows down the stream of revenue that will flow to the inventor. That slow-down reduces the return that the inventor can expect and will cause some of the projects within an inventor’s portfolio to become unprofitable and not worth the investment.”), which is something I very heartily welcome.

While I can see the strength of the argument – which basically is that “no injunction” policies weaken IP rights protection, and thus reduce incentives to invest –, the focus of the analysis is purposefully very narrow. As such, the paper does not address the main question underpinning all antitrust discussions in this area: when should antitrust be deployed and limit the protection granted by IP rights? After all, the question is not whether there is an absolute “no injunction” rule. Instead, the question surely is whether there are some specific circumstances in which recourse to an injunction can infringe antitrust law. Different systems answer this differently (and even in the US, which protects the right to sue under the First Amendment, there is a “nuisance litigation” exception). In any event, this article provides valuable inputs to an eventual identification of specific circumstances in which recourse to an injunction can infringe antitrust law, which is an exceedingly difficult matter.

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