Patent Protection, Takeovers, and Startup Innovation: A Dynamic Approach
AbstractThe impact of IP protection on the innovation incentives of startup firms is examined in a dynamic model where an incumbent faces a sequence of potential startups and the incumbent's chance of winning an infringement lawsuit increases with the size of its patent portfolio. It is shown that takeover deals generate extra benefits for the incumbent via its enhanced future bargaining positions, a part of which accrues to the current startup as an increased bargaining share. This increased bargaining share can be large enough to justify the startup's innovation activity that would not have taken place otherwise. This effect may be greatest under moderate levels of IP protection, because the increase in the bargaining share, being proportional to the marginal benefits brought by the last patent added to the portfolio, would be too small if the protection was too weak while it would taper off too quickly if the protection was excessive.
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Bibliographic InfoPaper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 08/201.
Length: 22 pages
Date of creation: May 2008
Date of revision:
Patent litigation; takeovers; patent portfolios;
Find related papers by JEL classification:
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- O34 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
- L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
- K0 - Law and Economics - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-02-14 (All new papers)
- NEP-COM-2009-02-14 (Industrial Competition)
- NEP-INO-2009-02-14 (Innovation)
- NEP-IPR-2009-02-14 (Intellectual Property Rights)
- NEP-LAW-2009-02-14 (Law & Economics)
- NEP-MIC-2009-02-14 (Microeconomics)
- NEP-TID-2009-02-14 (Technology & Industrial Dynamics)
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