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Profit Neutrality in Licensing: The Boundary Between Antitrust Law and Patent Law

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  • Stephen M. Maurer
  • Suzanne Scotchmer

Abstract

We address the patent/antitrust conflict in licensing and develop three guiding principles for deciding acceptable terms of license. Profit neutrality holds that patent rewards should not depend on the rightholder's ability to work the patent himself. Derived reward holds that the patentholder's profits should be earned, if at all, from the social value created by the invention. Minimalism holds that licenses should not be more restrictive than necessary to achieve neutrality. We argue that these principles are economically sound and rationalize some key decisions of the twentieth century such as General Electric and Line Material. Copyright 2006, Oxford University Press.

Suggested Citation

  • Stephen M. Maurer & Suzanne Scotchmer, 2006. "Profit Neutrality in Licensing: The Boundary Between Antitrust Law and Patent Law," American Law and Economics Review, Oxford University Press, vol. 8(3), pages 476-522.
    • Handle: RePEc:oup:amlawe:v:8:y:2006:i:3:p:476-522
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    References listed on IDEAS

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    1. Shapiro, Carl, 2003. "Antitrust Limits to Patent Settlements," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 391-411, Summer.
    2. Paul Klemperer, 1990. "How Broad Should the Scope of Patent Protection Be?," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 113-130, Spring.
    3. Richard Gilbert & Carl Shapiro, 1990. "Optimal Patent Length and Breadth," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 106-112, Spring.
    4. Ted O'Donoghue & Suzanne Scotchmer & Jacques‐François Thisse, 1998. "Patent Breadth, Patent Life, and the Pace of Technological Progress," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(1), pages 1-32, March.
    5. Suzanne Scotchmer, 1991. "Standing on the Shoulders of Giants: Cumulative Research and the Patent Law," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 29-41, Winter.
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    Cited by:

    1. Choi, Jay Pil & Gerlach, Heiko, 2019. "Optimal cross-licensing arrangements: Collusion versus entry deterrence," European Economic Review, Elsevier, vol. 120(C).
    2. Alberto BUCCI, 2004. "Economic growth in an enlarged Europe: the human capital and R&D dimensions," Departmental Working Papers 2004-22, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    3. Gerlagh, Reyer & Kverndokk, Snorre & Rosendahl, Knut Einar, 2014. "The optimal time path of clean energy R&D policy when patents have finite lifetime," Journal of Environmental Economics and Management, Elsevier, vol. 67(1), pages 2-19.
    4. Suarez, Javier & Llobet, Gerard, 2005. "Financing and the Protection of Innovators," CEPR Discussion Papers 4944, C.E.P.R. Discussion Papers.
    5. Rockett, Katharine, 2010. "Property Rights and Invention," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 315-380, Elsevier.
    6. Matthew D. Henry & John L. Turner, 2010. "Patent Damages And Spatial Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 58(2), pages 279-305, June.
    7. Llobet Gerard & Suarez Javier, 2012. "Patent Litigation and the Role of Enforcement Insurance," Review of Law & Economics, De Gruyter, vol. 8(3), pages 789-821, December.
    8. Gerlagh, Reyer & Kverndokk, Snorre & Rosendahl, Knut Einar, 2008. "Linking Environmental and Innovation Policy," Economic Theory and Applications Working Papers 37847, Fondazione Eni Enrico Mattei (FEEM).
    9. Régibeau, P & Rockett, K, 2004. "The Relationship Between Intellectual Property Law and Competition Law: An Economic Approach," Economics Discussion Papers 2851, University of Essex, Department of Economics.
    10. Schankerman, Mark & Scotchmer, Suzanne, 2005. "Still Looking for Lost Profits: The Case of Horizontal Competition," Department of Economics, Working Paper Series qt45r7776m, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    11. Toker Doganoglu & Firat Inceoglu, 2014. "Licensing of a Drastic Innovation with Product Differentiation," Manchester School, University of Manchester, vol. 82(3), pages 296-321, June.
    12. Gangopadhyay Shubhashis & Mallios Aineas & Sjögren Stefan, 2023. "Collusive Bidding, Competition Law, and Welfare," Review of Law & Economics, De Gruyter, vol. 19(2), pages 213-231, July.

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    More about this item

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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