Ebay ruling structurally disadvantages small firms
Ozden et al 23 [Senem Aydin Ozden, Bayes Business School, City University of London. Pooyan Khashabi, Department of Management, ESSEC Business School, Cergy-Pontoise. March 8, 2023. “Patent remedies and technology licensing: evidence from a supreme court decision” Strategic Management Journal, Volume 44, Issue 9, p. 2311-2338. https://doi.org/10.1002/smj.3493]
Third, new criteria regarding eligibility to obtain an injunction mostly favor large firms (Everding, 2007; Holte, 2015). Based on the new ruling, being or not being a product market competitor with the infringer is considered by the6 courts in determining the patentee's eligibility for an injunction (Diessel, 2007). Specifically, when a patentee is a direct product market competitor with an infringer, they usually secure an injunction (Seaman, 2016). However, if a patentee is not in direct competition with the infringer (e.g., small firms with no downstream production, specialized technology firms, or individual inventors), an injunction is generally denied (Seaman, 2016). Thus, following the Supreme Court's ruling, it has become harder for small firms to obtain injunctions, while large firms with downstream operations remain mostly eligible (Denicolo et al., 2008; Holte, 2015).
To sum up, we posit that small firms are more reliant on the excludability provided by injunctions in technology market transactions, while large firms can shield themselves from imitation via alternative mechanisms of protection. Additionally, with the new eligibility rules, small firms are less likely to obtain an injunction than large firms. Therefore, we expect to observe the decline in firms' propensity to license to be mainly driven by small firms.