Hypothetical Negotiation Research Articles

Strategies Aimed at Reducing Gender Differences in Negotiation Are Perceived by Women as Ineffective

Women often fare worse in negotiations than men. Negotiation researchers, trainers, and policymakers thus aim to find solutions—such as specific strategies for female negotiators—to reduce gender differences in negotiations. However, if using such a specific strategy is not perceived to yield benefits (e.g., better economic outcomes) as well as to include risks (e.g., unfavorable social evaluations), women should naturally be unlikely to use it. Hence, we examined 218 German women’s perceptions of three specific strategies (i.e., using a relational account, feminine charm, and confrontation) and three conventional strategies (i.e., assertiveness, yielding, and neutral behavior) using a hypothetical negotiation vignette. We found that women expected all three specific strategies to be less economically effective than regular assertiveness, which led to their lower likelihood to project using all three specific strategies. Moreover, all three specific strategies were expected to lead to less favorable social evaluations than yielding. This expectation also explained women’s lower likelihood to use feminine charm than to yield. Taken together, the specific strategies were perceived as ineffective. Future negotiation research, thus, needs to ensure that the characteristics of specific strategies do not render them unappealing, and trainers and policymakers need to pay attention to potential implementation gaps resulting from the specific strategies’ perceived ineffectiveness.

Using aggregate market data to estimate patent value: An application to United States smartphones 2010 to 2015

Intellectual property and its protection is one of the most valuable assets for entrepreneurs and firms in the information economy. This article describes a relatively straightforward approach to measuring patent value with aggregate market data and the BLP model. We apply the approach to United States smartphones. The demand estimates and recovered marginal costs produce sensible simulations of equilibria prices and shares from several hypothetical patent infringements. In one simulation, the presence of near field communication on the dominant firm's flagship smartphone results in a 29% increase in profits. This estimate provides a starting point for establishing a reasonable royalty between the patent holder and the dominant firm in a hypothetical negotiation. This simulation also shows that law-abiding firms inside the market may be damaged by the dominant firm's patent infringing behavior.

Using Aggregate Market Data to Estimate Patent Value

Intellectual property and its protection is one of the most valuable assets for entrepreneurs and firms in the information economy. This article describes a relatively straightforward method for measuring patent value with aggregate market data and the BLP model. We apply the method to United States smartphones. The demand estimates and recovered marginal costs produce sensible simulations of equilibria prices and shares from several hypothetical patent infringements. In one simulation, the presence of near field communication on the dominant firm’s flagship smartphone results in a 26 percent increase in profits per phone. This estimate provides a starting point for establishing a reasonable royalty between the patent holder and the dominant firm in a hypothetical negotiation.

Using Regression Analysis of Observed Licenses to Calculate a Reasonable Royalty for Patent Infringement

Patent licenses reveal information about how the market values a patented technology and how the market values new information concerning the probability of a patent’s validity and infringement. One can use that information to determine the value of the patent in suit under the assumed conditions in the Georgia-Pacific hypothetical negotiation that the patent is absolutely valid and infringed. Using regression analysis, an expert economic witness can use the change in royalty rates that occurs after pretrial rulings (by district courts, by the PTAB, or by the ITC or its individual administrative law judges) to calculate the market value of the increasing probability that the patent in suit is valid and infringed, and to predict the outcome of the hypothetical negotiation on the eve of the defendant’s first infringement of the patent in suit. The line of best fit might predict a gradually increasing royalty over time, as uncertainty about the patent’s validity and scope decreases. If so, extending the line of best fit to the trial date would provide a conservative (lower-bound) calculation of a reasonable royalty under the assumptions of absolute validity and infringement that apply in Georgia-Pacific’s hypothetical negotiation. This methodology enables the calculation of a reasonable royalty for the patent in suit that incorporates both the underlying legal assumptions of the hypothetical-negotiation framework and the market-disciplined prices that one subsequently observes in actual patent licenses voluntarily negotiated at arm’s length between the licensor and willing third parties.

Show Me the Money: Determining a Celebrity’s Fair Market Value in a Right of Publicity Action

As the power of celebrity continues to grow in the age of social media, so too does the price of using a celebrity’s name and likeness to promote a product. With the newfound ease of using Twitter, Facebook, and even print media to use a celebrity’s identity in conjunction with a product or company, right of publicity concerns arise. When a company uses a celebrity’s name and likeness without the celebrity’s authorization to market or sell a product, companies open themselves up to right of publicity suits. Many of these cases settle out of court. But when these cases do go to trial, a unique set of problems arise when expert testimony is used to determine the fair market value of the unauthorized use of the celebrity’s name or likeness. This Note examines two competing methods of fair market value calculation often utilized by expert witnesses, with a focus on one in particular—the hypothetical negotiation test—and examines this test using copyright and property principles. It concludes by arguing for a new way of viewing the hypothetical negotiation test, and proposes that the two competing tests may not be so different after all.

(Un)Reasonable Royalties

Though reasonable royalty damages are ubiquitous in patent litigation, they are only one-hundred years old. But in that time they have become deeply misunderstood. This Article returns to the development and origins of reasonable royalties, exploring both why and how courts originally assessed them.It then turns a harsh eye toward all that we think we know about reasonable royalties. No current belief is safe from criticism, from easy targets such as the 25% “rule of thumb” to fundamental dogma such as the hypothetical negotiation. In short, the Article concludes that we are doing it wrong, and have been for some time.This Article is agnostic as to outcome; departure from traditional methods can and has led to both over- and under-compensation. But it challenges those who support departure from historic norms—all the while citing cases from the same time period—to justify new rules, many of which fail any economic justification.

Using Conjoint Analysis to Apportion Patent Damages

Expert economic witnesses increasingly present survey evidence to support their calculations of reasonable-royalty damages in patent-infringement cases. In this article, we assess developments in the case law on the admissibility of expert testimony based on conjoint analysis, which is a particular type of survey analysis commonly used in market research to measure the tradeoffs that consumers make among salient features of a product. In a growing number of cases, experts have used conjoint analysis to estimate consumers’ average willingness to pay for a patented technology. That estimate informs the implementer’s maximum willingness to pay to license the patented technology, which is the upper bound on the bargaining range for a reasonable royalty in a hypothetical negotiation. We identify and analyze the factors that courts have considered when determining whether evidence from an expert’s conjoint survey is admissible. Further, one can use conjoint analysis to argue whether an infringing feature in a multicomponent product drives the demand for that product, which is relevant to the legal test in the United States for determining whether the patent holder may obtain an injunction and for identifying the appropriate royalty base for calculating damages. Decisions by the Federal Circuit and district courts in several disputes between Apple and Samsung indicate that the Federal Circuit has not yet provided comprehensive guidance on how to determine whether a patented feature drives demand for a downstream product for purposes of deciding whether a patent holder may obtain an injunction. Other Federal Circuit decisions indicate that, for purposes of identifying the appropriate royalty base, only evidence that a patented feature motivates consumers to purchase the product at issue will suffice to show that the patented feature drives demand for that downstream product.

Ongoing Royalties for Patent Infringement

Section 283 of the Patent Act provides that, to prevent the ongoing infringement of a patent, courts “may grant injunctions in accordance with the principles of equity.” If the court decides that the issuance of an injunction is not appropriate, it may direct the parties to negotiate a royalty for the infringer’s future use of the patented technology. When such a negotiation fails, the court will impose an ongoing royalty that the infringer must pay. The U.S. Court of Appeals for the Federal Circuit has clarified that the calculus for an ongoing royalty differs from the calculus for a reasonable royalty typically awarded for past infringement, but it has not prescribed any particular methodology for a court to apply when determining an ongoing royalty. I conduct an empirical analysis of the courts’ decisions on ongoing royalties, which shows that a court-awarded ongoing royalty typically exceeds the jury determined reasonable royalty imposed for past infringement. However, my analysis does not identify any single variable that affects the court’s determination of an ongoing royalty, which suggests that the courts have not yet developed a consistent methodology for determining an ongoing royalty. This article aims to fill that gap in the existing legal guidance by providing a simple yet rigorous economic methodology that courts can apply when determining an ongoing royalty. Because an ongoing royalty is an equitable remedy, awarded in lieu of a permanent injunction, no jury needs to be involved in determining the ongoing royalty. Consequently, Daubert and its progeny are not implicated (or, at the very least, the role of Daubert differs from its role in cases in which a jury acts as the finder of fact). In addition, the rationale for the entire market value rule (EMVR) — namely, avoiding jury confusion because of a large damage base — is inapplicable when calculating an ongoing royalty. When determining an ongoing royalty for the prospective use of a patented technology, courts can apply a methodology similar to that used to calculate a reasonable royalty. Courts need to consider the changes in economic circumstances from the time of first infringement to the time of the jury’s verdict and then determine how those changes affect the hypothetical negotiation for an ongoing royalty. In economic terms, courts should examine how the information that became available after the first infringement affects the bargaining range for the use of the patent or patent portfolio. That is, courts need to identify any changes in the patent holder’s minimum willingness to accept and the infringer’s maximum wiliness to pay. Next, courts need to examine whether the parties’ relative bargaining positions have changed (compared to their bargaining positions at the time of first infringement) to determine a point royalty within the bargaining range. I show that, although the court’s determination of an ongoing royalty will be fact specific and will vary on the basis of the specific circumstances of each case, the changes in the economic conditions between the time of first infringement and the time of the hypothetical negotiation for an ongoing royalty will typically support the award of an ongoing royalty that exceeds the reasonable royalty for past infringement. An ongoing royalty that exceeds the reasonable royalty for past infringement should not be confused with an award of enhanced damages for willful infringement, which courts rarely award.

Judging Monopolistic Pricing: F/RAND and Antitrust Injury

In a 2013 opinion in Microsoft v. Motorola, Judge James Robart calculated “reasonable and nondiscriminatory” or RAND royalties that Motorola could lawfully charge Microsoft for licenses to use Motorola patents that were essential to two industry standards. Although the case involved only a claim for breach of contract, Judge Robart’s opinion regulated monopoly pricing, a task courts try to avoid in other contexts, claiming institutional incapacity. In this instance, however, Judge Robart identified standards that he believed adequately guided him in the task. He recognized that the economic purposes of the RAND commitment were to prevent owners of standards-essential patents from, first, holding up licensees by exploiting the additional monopoly power that the standard conferred and, second, inefficiently stacking royalties with other essential patents. In estimating rates consistent with these purposes, he used as starting points the rates charged by two patent pools associated with the standards. Throughout, Judge Robart presented the process of estimation in terms of a hypothetical negotiation between a prospective licensee and the owner of the standard-essential patent. In this paper, however, I argue that Judge Robart’s approach, and the process of calculating RAND or FRAND royalties generally, can be better understood as comparable to the calculation of the overcharge caused by a monopolistic exclusionary practices — a form of antitrust injury. In both contexts, courts compare actual prices with those in counterfactual, but-for world free from improper exploitation of monopoly power.

THE PROPER ROYALTY BASE FOR PATENT DAMAGES

How should a court determine the proper royalty base when calculating either reasonable-royalty damages for patent infringement or fair, reasonable, and nondiscriminatory (FRAND) royalties for infringement of, or licensing disputes over, standard-essential patents (SEPs)? This determination is particularly challenging in the context of a multi-component device, such as a smartphone. It is established patent jurisprudence that a reasonable royalty should reflect the terms of a hypothetical license resulting from a voluntary negotiation between a willing licensor and a willing licensee at the moment just before first infringement. In real-world patent negotiations, firms often calculate royalties with reference to the retail price of the downstream product. Therefore, using that downstream retail price as the royalty base is the most authentic assumption about the royalty base that a court could use for a hypothetical negotiation between a willing licensor and a willing licensee. Nonetheless, as a result of a recent series of confusing and contradictory opinions, the Federal Circuit in all but exceptional cases now decidedly favors using, for purposes of the hypothetical negotiation, a royalty base equivalent to the price of the infringing product’s “smallest salable patentpracticing component” instead of the “entire market value” of the product. In cases where the downstream product is the “smallest salable patent-practicing component” and unpatented features constitute a substantial proportion of the product, the Federal Circuit favors subtracting the value of these unpatented elements from the royalty base. This development in the law of the entire market value rule (EMVR) has perverse consequences that the Federal Circuit has yet to recognize. Using the price of the smallest salable patent-practicing component as the royalty base risks undercompensating the patent holder, because it ignores (1) the effects that the patented technology has on the value of the downstream product and (2) the value that synergies between complementary technologies create. A more complete economic approach would account for such complementarity effects by permitting the use of the retail price of the downstream product as the royalty base. The Federal Circuit’s choice of royalty base in its EMVR jurisprudence seems based on a theory that juries tend to overcompensate patent holders due to cognitive bias. However, the Federal Circuit fails to explain

The Proper Royalty Base for Patent Damages

How should a court determine the proper royalty base when calculating either reasonable-royalty damages for patent infringement or fair, reasonable, and nondiscriminatory (FRAND) royalties for infringement of, or licensing disputes over, standard-essential patents (SEPs)? This determination is particularly challenging in the context of a multi-component device, such as a smartphone. It is established patent jurisprudence that a reasonable royalty should reflect the terms of a hypothetical license resulting from a voluntary negotiation between a willing licensor and a willing licensee at the moment just before first infringement. In real-world patent negotiations, firms often calculate royalties with reference to the retail price of the downstream product. Therefore, using that downstream retail price as the royalty base is the most authentic assumption about the royalty base that a court could use for a hypothetical negotiation between a willing licensor and a willing licensee. Nonetheless, as a result of a recent series of confusing and contradictory opinions, the Federal Circuit in all but exceptional cases now decidedly favors using, for purposes of the hypothetical negotiation, a royalty base equivalent to the price of the infringing product’s “smallest salable patent practicing component” instead of the “entire market value” of the product. In cases where the downstream product is the “smallest salable patent-practicing component” and unpatented features constitute a substantial proportion of the product, the Federal Circuit favors subtracting the value of these unpatented elements from the royalty base. This development in the law of the entire market value rule (EMVR) has perverse consequences that the Federal Circuit has yet to recognize. Using the price of the smallest salable patent-practicing component as the royalty base risks undercompensating the patent holder, because it ignores (1) the effects that the patented technology has on the value of the downstream product and (2) the value that synergies between complementary technologies create. A more complete economic approach would account for such complementarity effects by permitting the use of the retail price of the downstream product as the royalty base. The Federal Circuit’s choice of royalty base in its EMVR jurisprudence seems based on a theory that juries tend to overcompensate patent holders due to cognitive bias. However, the Federal Circuit fails to explain the logic and limits of its concern over cognitive bias. It therefore fails to justify its preference for the smallest salable patent-practicing component and risks undercompensating patent holders. Finally, I show that risk-averse firms should prefer structuring damages awards in a manner that reduces errors. This analysis of risk bearing indicates that, if a royalty with a low rate and high base is more accurate than one with a high rate and low base, courts should use the EMVR when awarding damages. The Federal Circuit’s jurisprudence on patent damages currently ignores this concern.

A Social Contract for International Business Ethics

This article begins with a detailed analysis of how the choice situation of a social contract for international business ethics can be constructed and justified. A choice situation is developed by analyzing conceptions of the multinational firm and the domain of international business. The result is a hypothetical negotiation between two fictional characters, J. Duncan Grey and Elizabeth Redd, who respectively represent the interests of businesses and communities seeking to engage in international trade. The negotiators agree on ethical principles governing wages, the environment, and compliance social and cultural norms. These principles are then shown to rest in wide reflective equilibrium with considered moral judgments on international business ethics, which are drawn from international agreements, such as the UN Declaration on Human Rights, and voluntary business initiatives, such as the Global Sullivan Principles and the UN Global Compact.

A computational model for multi-agent E-commerce negotiations with adaptive negotiation behaviors

This paper presents a computational model to organize multi-agent E-commerce negotiations with adaptive negotiation behaviors aiming at enhancing the negotiation flexibilities of software agents. Firstly, the computational E-commerce negotiation model covering negotiation protocol, negotiation issues and negotiation strategies is specified to assist agents’ computing functions. Then, a three-staged adaptive negotiation behavior configuration mechanism is proposed to tackle the negotiation dynamics. In the pre-negotiation stage, agents’ negotiation behaviors are deployed by the case-based strategy assignment mechanism; in the on-going negotiation stage, opponents’ negotiation behaviors are tracked through the neural network learning model; in the post-negotiation stage, opponents’ concession functions are recorded using the time series measure. Finally, the computational negotiation model is tested through hypothetical negotiation cases. The outcomes show that the adaptive negotiation behavior configuration mechanism can benefit an agent to win more in the E-commerce negotiation.

Patent 'Hold-Up,' Infringement Remedies, and the Operation of Standards-Setting Organizations: How the FTC’s Ill-Advised Campaign Against Innovators Threatens Incentives

In March 2011 the FTC issued a report entitled “The Evolving IP Marketplace” (the “Report”). In this Report, the FTC assumes as fact that the IP marketplace suffers a pervasive problem of “patent hold-up” in which patentees take advantage of the “sunk costs” of infringers to extract excessive royalties from licensees, and proposes to “fix” that supposed problem by weakening the remedies available against an infringer that does not voluntarily take a license. Instead, the FTC’s recommendations would disrupt and discourage voluntary licensing, discourage investment in innovation, and damage both industry participants and consumers. The FTC proposes that damages for patent infringement be limited to the “incremental value” provided by the patent over the “next best alternative,” and that courts calculating damages should fix the “hypothetical negotiation” at a time before the infringer has made any investments specific to the infringement, rather than at the time of first infringement (as under current law). In the case of standardized technologies, the FTC contends that the “hypothetical negotiation” should always be fixed prior to the adoption of the relevant standard. The Report also recommends further narrowing the cases in which an injunction could be obtained against an infringer. Following issuance of the Report, the FTC conducted a public workshop concerning patents and standards in June of 2011, and solicited public comment, receiving comment from a large number of industry participants of varying interests, as well as standards-setting organizations (“SSOs”), academics, industry analysts, and others. Issues of patent remedies and incentives for innovation are often dealt with in the academic literature as a matter of pure economic theory, using radically simplified economic models in a vacuum of empirical information. For this paper, in sharp contrast, we reviewed the entire record from the FTC workshop and public comment, and analyze the FTC’s recommendations in light of the real-world facts and perspectives provided by the commentators. We conclude that the FTC’s starting assumption that there is a systemic “patent hold-up” problem is empirically unfounded, and that indeed the great weight of industry comment says that there is not. In standardized industries in particular, SSOs uniformly report that their existing licensing policies have avoided any hold-up problems. We further conclude that the recommendation to cap patent damages by an “incremental value” measure is both theoretically incorrect and impossible for courts to apply, and that any attempt to do so would severely discourage investment in innovation. We also find that the proposal to move the time of a “hypothetical negotiation” analysis is misguided, and would encourage infringement at the expense of the voluntary negotiation of licenses - a value-destroying shift that again would discourage investment and damage consumers as well as industry participants. Finally, we find no justification for any further restriction of the patentee’s right to injunctive relief beyond the limitations imposed by the Supreme Court’s decision in eBay.

PATENT DAMAGES AND SPATIAL COMPETITION*

We analyze price competition between a spatially differentiated product patentee and an imitator anticipating probabilistic future patent damages. We compare the performance of three damage regimes. The ‘reasonable royalty’ regime, which yields symmetric equilibrium pricing, maximizes static welfare and yields the highest innovation incentives when patent enforcement is nearly certain. The ‘lost profits’ regime, which may deter infringement, yields the highest innovation incentives when patent enforcement is less‐than‐certain and products are sufficiently valuable. The ‘unjust enrichment’ regime yields low static efficiency and low innovation incentives. We offer new insights into the ‘hypothetical negotiation’ that courts use to construct reasonable royalties.

Cultural Variance in the Interpersonal Effects of Anger in Negotiations

The current research is the first investigation of how the effects of expressing discrete emotions in negotiations vary across cultures. In a hypothetical negotiation scenario (Study 1) and a computer-mediated negotiation simulation (Study 2), expressing anger (relative to not expressing anger) elicited larger concessions from European American negotiators, but smaller concessions from Asian and Asian American negotiators. A third study provided evidence that this effect is due to different cultural norms about the appropriateness of anger expressions in negotiations: When we explicitly manipulated anger expressions to be appropriate, Asian and Asian American negotiators made larger concessions to the angry opponent, and their concessions were as large as was typical for European American negotiators; when we explicitly manipulated anger expressions to be inappropriate, European American negotiators made smaller concessions to the angry opponent, and their concessions were as small as was typical for Asian and Asian American negotiators. Implications for current understanding of culture, emotions, and negotiations are discussed.

Female Athletes Do Ask! An Exploratory Study of Gender Differences in the Propensity to Initiate Negotiation among Athletes

Researchers have extensively documented gender differences in negotiation perceptions and performance which, in turn, may contribute to the persistence of salary and workplace inequity between women and men. The purpose of this study was to determine if these differences existed among a sample of 228 athletes (women n = 151 and men n = 77) who had competed in sport at high school, competitive club, college, or through professional levels for 15 years. More specifically, gender differences in the propensity to initiate negotiation were investigated in order to determine whether the three factors associated with the Babcock, Gelfand, Small, and Stayn (2006) Propensity to Initiate Negotiation Model (i.e., recognition of opportunity, sense of entitlement, and apprehension) explained and mediated such differences. Propensity to initiate negotiation (PIN) was operationally defined as self-reported responses to a series of hypothetical negotiation scenarios, as well as recent and anticipated future negotiation experiences. Females reported significantly more negotiation apprehension than males; they did not differ, however, in their recognition of opportunities and sense of entitlement associated with negotiation. The implications of these findings are discussed.

Mars v. Coin Acceptors and the 'Hypothetical Negotiation' Approach to Reasonable Royalty Calculations

In its recent decision in Mars, et al. v. Coin Acceptors Inc., the Federal Circuit ruled that reasonable royalty damages were not capped by the amount an infringing firm could have paid to avoid infringement. In other recent decisions the Federal Circuit concluded that a reasonable royalty was not capped by the expected profits of the infringing firm. As I explain below, these decisions are consistent with a compensatory damages rule that fully compensates a patent holder in circumstances in which a hypothetical negotiation between the patent holder and the infringing firm would have been unlikely to lead to any license agreement.

Patent Damages and Spatial Competition

This paper examines the impact of three patent damage regimes on licensing and competition between a patentee and imitator. We focus on product patents in a differentiated, duopoly setting. Neither per-unit royalties nor fixed fees under efficient licensing are unique in equilibrium. As a result, the reasonable royalty damage regime's application of a hypothetical negotiation gives the court significant discretion in assigning damages. The lost profits regime, the only one that may deter infringement, typically yields the highest incentives to innovate for highly valuable products. The unjust enrichment regime is weakest. Our results offer an efficiency argument for abandoning it.

Using Apportionment to Rein in the Georgia-Pacific Factors

In a dramatic departure from well established patented damages law, which would confine a reasonable royalty to a portion of the profit contributed by the infringed patent, current Federal Circuit precedent permits a reasonable royalty on an even relatively insignificant component to exceed not only the profit attributable that component, but, in some cases, the entire profit on the product. That precedent ignores the history of the reasonable royalty award, which originated as merely a substitute for an established royalty. Just as the real life negotiations that led to an established royalty would result in the licensor and each licensee splitting the profit attributable to the licensed patent, the hypothetical negotiation that results in a reasonable royalty should result in the patentee and infringer splitting the profits attributable to the infringed patent. The Federal Circuit's precedent also ignores longstanding apportionment principles, under which a patentee should not be entitled to recover any reasonable royalty on the unpatented features of an infringing product. Unbound as they are from their economic and legal foundations, royalty awards have, not surprisingly, become arbitrary and often punitive. This article argues that to rein in reasonable royalty awards, restore them to their historical role, and ensure that they are consistent with long-standing principles of patent damages law, apportionment should be the threshold question in every reasonable royalty analysis. That is, the first question should be: what portion of the profits on the infringing product is attributable to the claimed invention's advance over the prior art? It is that portion of the profits - and only that portion - that the patentee should receive as a share by way of a royalty. By treating apportionment as a threshold question, therefore, courts can ensure that the resulting reasonable royalty award is properly confined to a portion of the profits attributable to the patent. The proper magnitude of that portion can then be determined by reference to the remaining Georgia-Pacific and other relevant factors.