The Rise of Judicial Ratemaking in Patent Law

Traditionally, the United States’ generalist federal courts have been reluctant to engage in forward-looking price-setting. Jurists have long posited that such courts’ deficiencies in expertise, general and continuing oversight authority, and investigatory capacities are likely to greatly hamper any efforts on their part to generate socially desirable (or at least not too socially undesirable) systems of forward-looking prices. Nonetheless, in the past two decades, United States patent law has undergone a transformation in which judicial ratemaking has become comparatively routine. Courts now unremarkably decline to grant injunctions against continuing infringement and impose on parties an ongoing, court-set royalty instead. This essay chronicles both the traditional background skepticism of such judicial ratemaking and the reasons for the rise of a new order in patent law. The essay further suggests that the bases for traditional skepticism retain force and counsel efforts to limit the use of courts’ ratemaking powers, even while acknowledging that some judicial ratemaking is desirable. Particularly in the context of standard-essential patents (“SEPs”), progress in private ordering and administrative interventions might reduce the need for reliance on the courts. Meanwhile, courts themselves could adopt a more refined approach to applying the U.S. Supreme Court’s decision in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006). They could also help encourage pre-ratemaking settlement by more regularly bifurcating trials of liability and damages.