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Broad Cross-License Agreements andPersuasive Patent Litigation: Theory andEvidence from the Semiconductor Industry

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Alberto Galasso

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Abstract

In many industries broad cross-license agreements are considered a useful method toobtain freedom to operate and to avoid patent litigation. In this paper I study thepreviously neglected dynamic trade-off between litigating and cross-licensing that firmsface to protect their intellectual property. I present a model of bargaining with learning inwhich firms' decisions to litigate or crosslicense depend on their investments intechnology specific assets. In particular the model predicts that where firms' sunk costsare higher, their incentive to litigate and delay a cross-license agreement is lower. Inaddition, the bargaining game shows how firms with intermediate values of assetspecificity tend to engage in inefficient "persuasive litigation". Using a novel dataset onthe US semiconductor industry I obtain empirical results consistent with those suggestedby the model. Combining model intuition with some empirical figures, I evaluate possibleeffects of the currently debated patent litigation reform.

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Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Economics of Industry Papers with number 45.

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Date of creation: Jul 2007
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Handle: RePEc:cep:stieip:45

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Related research
Keywords: cross-license; patent litigation; bargaining; semiconductors.;

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Find related papers by JEL classification:
C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Timothy S. Simcoe & Stuart J.H. Graham & Maryann Feldman, 2007. "Competing on Standards? Entrepreneurship, Intellectual Property and the Platform Paradox," NBER Working Papers 13632, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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