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Patent Thickets and the Market for Innovation: Evidence from Settlement of Patent Disputes

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  • Alberto Galasso
  • Mark Schankerman
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    Abstract

    We study how fragmentation of patent rights ('patent thickets') and the formation of the Court of Appeal for the Federal Circuit (CAFC) affected the duration of patent disputes, and thus the speed of technology diffusion through licensing. We develop a model of patent litigation which predicts faster settlement agreements when patent rights are fragmented and when there is less uncertainty about court outcomes, as was associated with the 'pro-patent shift' of CAFC. The model also predicts that the impact of fragmentation on settlement duration should be smaller under CAFC. We confirm these predictions empirically using a dataset that covers nearly all patent suits in U.S. federal district courts during the period 1975-2000. Finally, we analyze how fragmentation affects total settlement delay, taking into account both reduction in duration per dispute and the increase in the number of required patent negotiations associated with patent thickets.

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    Bibliographic Info

    Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0889.

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    Date of creation: Aug 2008
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    Handle: RePEc:cep:cepdps:dp0889

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    Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

    Related research

    Keywords: patents; anti-commons; patent thickets; litigation; settlement;

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    1. Carl Shapiro, 2001. "Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting," NBER Chapters, in: Innovation Policy and the Economy, Volume 1, pages 119-150 National Bureau of Economic Research, Inc.
    2. Joshua S. Cans & Scott Stern, 2000. "Incumbency and R&D Incentives: Licensing the Gale of Creative Destruction," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 9(4), pages 485-511, December.
    3. Josh Lerner & Jean Tirole, 2002. "Efficient Patent Pools," NBER Working Papers 9175, National Bureau of Economic Research, Inc.
    4. Spier, Kathryn E, 1992. "The Dynamics of Pretrial Negotiation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 59(1), pages 93-108, January.
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    7. Anand, Bharat N & Khanna, Tarun, 2000. "The Structure of Licensing Contracts," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 48(1), pages 103-35, March.
    8. Carlos J. Serrano, 2008. "The Dynamics of the Transfer and Renewal of Patents," NBER Working Papers 13938, National Bureau of Economic Research, Inc.
    9. Joshua S. Gans & David H. Hsu & Scott Stern, 2002. "When Does Start-Up Innovation Spur the Gale of Creative Destruction?," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 571-586, Winter.
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    14. Mark Schankerman, 1998. "How Valuable is Patent Protection? Estimates by Technology Field," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 77-107, Spring.
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    Cited by:
    1. Darcy, Jacques & Krämer-Eis, Helmut & Guellec, Dominique & Debande, Olivier, 2009. "Financing technology transfer," EIB Papers 10/2009, European Investment Bank, Economics Department.
    2. Bronwyn H. Hall, 2010. "The Financing of Innovative Firms," Review of Economics and Institutions, Università di Perugia, Università di Perugia, vol. 1(1).
    3. Cockburn, Iain M. & MacGarvie, Megan J. & Müller, Elisabeth, 2009. "Patent thickets, licensing and innovative performance," ZEW Discussion Papers 08-101 [rev.], ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    4. Bottazzi, Laura, 2009. "The role of venture capital in alleviating financial constraints of innovative firms," EIB Papers 9/2009, European Investment Bank, Economics Department.
    5. Shahid Yusuf & Kaoru Nabeshima, 2009. "Growth through Innovation : An Industrial Strategy for Shanghai," World Bank Other Operational Studies 18613, The World Bank.
    6. Harhoff, Dietmar, 2009. "The role of patents and licenses in securing external finance for innovation," EIB Papers 11/2009, European Investment Bank, Economics Department.

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