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Financing And The Protection Of Innovators

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Author Info
Gerard Llobet ()
Javier Suarez () (CEMFI, Centro de Estudios Monetarios y Financieros)

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Abstract

The protection that innovators obtain through intellectual property rights crucially depends on their incentives and ability to litigate infringers. Taking patents as a notable example, we study how the financing of legal costs can alter the incentives to litigate in defense of a petent and, thus, the prospects of infrigement and the effective protection of the innovator. We compare the resort to a financier once the infrigement has occurred (ex-post financing) with patent litigation insurance (PLI) as well as other ex-ante arrangements based on leverage. We show that the ex-ante arrangements can be designed (for instance, in the case of PLI, by including an appropiate deductible) so as to implement the innovator's second-best outcome: a situation in which patent predaction is deterred without inducing excessive litigation.

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Publisher Info
Paper provided by CEMFI in its series Working Papers with number wp2005_0502.

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Date of creation: Feb 2005
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Handle: RePEc:cmf:wpaper:wp2005_0502

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Related research
Keywords: Financial strategy; intellectual property; litigation; predation.;

Other versions of this item:

Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
O34 - Economic Development, Technological Change, and Growth - - Technological Change - - - Intellectual Property Rights
O52 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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References listed on IDEAS
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. Llobet, Gerard, 2003. "Patent litigation when innovation is cumulative," International Journal of Industrial Organization, Elsevier, vol. 21(8), pages 1135-1157, October. [Downloadable!] (restricted)
  2. Bebchuk, Lucian Arye & Chang, Howard F, 1996. "An Analysis of Fee Shifting Based on the Margin of Victory: On Frivolous Suits, Meritorious Suits, and the Role of Rule 11," Journal of Legal Studies, University of Chicago Press, vol. 25(2), pages 371-403, June.
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  3. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August. [Downloadable!] (restricted)
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  4. Michael J. Meurer, 1989. "The Settlement of Patent Litigation," RAND Journal of Economics, The RAND Corporation, vol. 20(1), pages 77-91, Spring. [Downloadable!] (restricted)
  5. Lerner, Josh, 1995. "Patenting in the Shadow of Competitors," Journal of Law & Economics, University of Chicago Press, vol. 38(2), pages 463-95, October.
  6. Reiko Aoki & Jin-Li Hu, 1999. "Licensing vs. Litigation: The Effect of the Legal System on Incentives to Innovate," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 8(1), pages 133-160, 03. [Downloadable!] (restricted)
  7. Crampes, Claude & Langinier, Corinne, 2002. "Litigation and Settlement in Patent Infringement Cases," Staff General Research Papers 5231, Iowa State University, Department of Economics.
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  8. Stephen M. Maurer & Suzanne Scotchmer, 2004. "Profit Neutrality in Licensing: The Boundary Between Antitrust Law and Patent Law," Law and Economics 0407001, EconWPA. [Downloadable!]
  9. Lanjouw, Jean O & Schankerman, Mark, 2004. "Protecting Intellectual Property Rights: Are Small Firms Handicapped?," Journal of Law & Economics, University of Chicago Press, vol. 47(1), pages 45-74, April.
  10. Bolton, Patrick & Scharfstein, David S, 1990. "A Theory of Predation Based on Agency Problems in Financial Contracting," American Economic Review, American Economic Association, vol. 80(1), pages 93-106, March. [Downloadable!] (restricted)
  11. Stephen M. Maurer & Suzanne Scotchmer, 2004. "Profit Neutrality in Licensing: The Boundary between Antitrust Law and Patent Law," NBER Working Papers 10546, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Choi, Jay Pil, 1998. "Patent Litigation as an Information-Transmission Mechanism," American Economic Review, American Economic Association, vol. 88(5), pages 1249-63, December. [Downloadable!] (restricted)
  13. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November. [Downloadable!] (restricted)
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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. Javier Díaz-Giménez & Josep Pijoan-Mas, 2006. "Flat Tax Reforms In The U.S.: A Boon For The Income Poor," Working Papers wp2006_0611, CEMFI. [Downloadable!]
    Other versions:
  2. Jose Ceron & Javier Suarez, 2006. "Hot And Cold Housing Markets: International Evidence," Working Papers wp2006_0603, CEMFI. [Downloadable!]
    Other versions:
  3. Aleix Calveras & Juan-José Ganuza & Gerard Llobet, 2005. "Regulation And Opportunism: How Much Activism Do We Need?," Working Papers wp2005_0508, CEMFI. [Downloadable!]
    Other versions:
  4. Beatriz Dominguez & Juan-José Ganuza & Gerard Llobet, 2006. "R&D In The Pharmaceutical Industry: A World Of Small Innovation," Working Papers wp2006_0601, CEMFI. [Downloadable!]
    Other versions:
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