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Patents, Invalidity, and the Strategic Transmission of Enabling Information

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  • James J. Anton
  • Dennis A. Yao

Abstract

The patent system encourages innovation and knowledge disclosure by providing exclusivity to inventors. Exclusivity is limited, however, because a substantial fraction of patents have some probability of being ruled invalid when challenged in court. The possibility of invalidity-and an ensuing market competition-suggests that when an innovator's capability (e.g., cost of production) is private information, there is potential value to an innovator from signaling strong capability via a disclosure that transfers technical knowledge to a competitor. We model a product-innovation setting in which a valid patent gives market exclusivity and find a unique signaling equilibrium. One might expect that as the probability that a patent will be invalid becomes low, greater disclosure will be induced. We do not find this expectation to be generally supported. Further, even where full disclosure arises in equilibrium, it is only the less capable who make full disclosures. The equilibrium analysis also highlights many of the novel and appealing features of enabling knowledge disclosure signals. Copyright (c) 2003 Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 12 (2003)
Issue (Month): 2 (06)
Pages: 151-178

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Handle: RePEc:bla:jemstr:v:12:y:2003:i:2:p:151-178

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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

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Web: http://www.blackwellpublishing.com/journal.asp?ref=1058-6407&site=1

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Cited by:
  1. Baker, Scott & Lee, Pak Yee & Mezzetti, Claudio, 2008. "Intellectual Property Disclosure as 'Threat'," The Warwick Economics Research Paper Series (TWERPS) 881, University of Warwick, Department of Economics.
  2. Martimort, D. & Poudou, J.-C. & Sand-Zantman, W., 2006. "Contracting for an Innovation under Bilateral Asymmetric Information," Cahiers du LASER (LASER Working Papers) 2006.19, LASER (Laboratoire de Science Economique de Richter), Faculty of Economics, University of Montpellier 1.
  3. Gaétan de Rassenfosse & Alfons Palangkaraya & Elizabeth Webster, 2013. "Do Patents Shield Disclosure or Assure Exclusivity When Transacting Technology?," Melbourne Institute Working Paper Series wp2013n05, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  4. Bertrand Chopard & Thomas Cortade & Eric Langlais, 2013. "Damage rules and the patent hold-up problem : An analysis of Article L. 615-7," EconomiX Working Papers 2013-37, University of Paris West - Nanterre la Défense, EconomiX.
  5. Aoki, Reiko & Spiegel, Yossi, 2009. "Pre-grant patent publication and cumulative innovation," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 333-345, May.
  6. Miller, David A., 2008. "Invention under uncertainty and the threat of ex post entry," European Economic Review, Elsevier, vol. 52(3), pages 387-412, April.
  7. Laura Magazzini & Fabio Pammolli & Massimo Riccaboni & Maria Alessandra Rossi, 2009. "Patent disclosure and R&D competition in pharmaceuticals," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 18(5), pages 467-486.
  8. Matthew D. Henry & John L. Turner, 2010. "PATENT DAMAGES AND SPATIAL COMPETITION -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 58(2), pages 279-305, 06.
  9. Carlos Ponce, 2003. "Knowledge Disclosure as Intellectual Property Rights Protection," Levine's Working Paper Archive 618897000000000550, David K. Levine.
  10. Carlos J. Ponce, 2007. "Knowledge disclosure as intellectual property rights," Economics Working Papers we077140, Universidad Carlos III, Departamento de Economía.
  11. Carlos J Ponce, 2007. "More Secrecy...More Knowledge Disclosure? On Disclosure Outside of Patents," Levine's Working Paper Archive 122247000000001600, David K. Levine.
  12. Katharine Rockett, 2009. "Property Rights and Invention," Economics Discussion Papers 663, University of Essex, Department of Economics.
  13. Choi, Jay Pil, 2009. "Alternative damage rules and probabilistic intellectual property rights: Unjust enrichment, lost profits, and reasonable royalty remedies," Information Economics and Policy, Elsevier, vol. 21(2), pages 145-157, June.

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