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Bargaining over Royalties in the Shadow of Litigation

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  • Inderst, Roman
  • Griem, Fabian

Abstract

We model negotiations over patent royalties in the shadow of litigation through a Nash-in-Nash approach, where outside options, triggered in case of disagreement, are derived from a subsequent game of litigation. The outcome of litigation depends both on "hard determinants", such as relative patent strength, and on "soft determinants", such as parties' efficacy in litigation or their (known) preparedness to disrupt negotiations in favor of litigation. Amongst other things, this has implications for the interpretation of observed royalties in empirical analysis.

Suggested Citation

  • Inderst, Roman & Griem, Fabian, 2022. "Bargaining over Royalties in the Shadow of Litigation," CEPR Discussion Papers 16902, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16902
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    More about this item

    Keywords

    Royalties; Litigation; Nash-in-nash;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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