How Strong Are Weak Patents?
AbstractWe study the welfare economics of probabilistic patents that are licensed without a full determination of validity. We examine the social value of instead determining patent validity before licensing to downstream technology users, in terms of deadweight loss (ex post) and innovation incentives (ex ante). We relate the value of such pre-licensing review to the patent's strength, i.e., the probability it would hold up in court, and to the per-unit royalty at which it would be licensed. We then apply these results using a game-theoretic model of licensing to downstream oligopolists, in which we show that determining patent validity prior to licensing is socially beneficial. (JEL D82, K11, L24, O34 )
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 98 (2008)
Issue (Month): 4 (September)
Other versions of this item:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- K11 - Law and Economics - - Basic Areas of Law - - - Property Law
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
- O34 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
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