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Licensing vs. Litigation: The Effect of the Legal System on Incentives to Innovate

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  • Reiko Aoki
  • Jin-Li Hu

Abstract

With uncertain scope of patent protection and imperfect enforcement, the effective strength of patent protection is determined by the legal system. We analyze how the legal system affects the incentives of firms to innovate, taking into account possibilities of strategic licensing and litigation to deter imitation. The legal system that guarantees the patentee's monopoly power maximizes the R&D intensities. However, the legal system that induces licensing provides incentives to exert R&D effort while preserving ex post efficiency. We also compare R&D, patent licensing, and litigation behavior under American and English rules of legal cost allocation. Copyright (c) 1999 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): 8 (1999)
Issue (Month): 1 (03)
Pages: 133-160

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Handle: RePEc:bla:jemstr:v:8:y:1999:i:1:p:133-160

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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. Reiko Aoki & Yossef Spiegel, 2000. "Public Disclosure of Patent Applications, R & D, and Welfare," Econometric Society World Congress 2000 Contributed Papers 1273, Econometric Society.
  2. ENCAOUA, David & LEFOUILI, Yassine, . "Licensing 'weak' patents," CORE Discussion Papers RP -2159, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Ottoz Elisabetta & Cugno Franco, 2012. "Does Banning Side Payments in Patent Settlements Suffice to Fully Protect Consumers?," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201201, University of Turin.
  4. Gerard Llobet & Javier Suarez, 2005. "Financing And The Protection Of Innovators," Working Papers wp2005_0502, CEMFI.
  5. Joseph Farrell & Carl Shapiro, 2008. "How Strong Are Weak Patents?," American Economic Review, American Economic Association, vol. 98(4), pages 1347-69, September.
  6. Mitchell, Matthew & Zhang, Yuzhe, 2012. "Shared Rights and Technological Progress," MPRA Paper 36537, University Library of Munich, Germany.
  7. 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.
  8. Da Rin, Marco & Hege, Ulrich & Llobet, Gerard & Walz, Uwe, 2005. "The law and finance of venture capital financing in Europe: findings from the RICAFE research project," MPRA Paper 39552, University Library of Munich, Germany.
  9. 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.
  10. Llobet, Gerard, 2003. "Patent litigation when innovation is cumulative," International Journal of Industrial Organization, Elsevier, vol. 21(8), pages 1135-1157, October.
  11. Etienne Pfister✝, 2004. "Brevet, secretet concurrence technologique. Comment protéger les instruments de recherche ?," Revue d'économie politique, Dalloz, vol. 0(3), pages 323-352.
  12. Etienne Pfister, 2004. "Brevet, secret et concurrence technologique : comment protéger les instruments de recherche ?," Cahiers de la Maison des Sciences Economiques bla04057, Université Panthéon-Sorbonne (Paris 1).

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