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Choosing Intellectual Protection: Imitation, Patent Strength and Licensing

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  • David Encaoua

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)

  • Yassine Lefouili

Abstract

This paper investigates the choice of an intellectual protection regime for a process innovation. We set up a multi-stage model in which choosing between patent and trade secrecy is affected by three parameters : the patent strength defined as the probability that the right is upheld by the court, the cost of imitating a patented innovation relative to the cost of imitating a secret innovation, and the innovation size defined as the extent of the cost reduction. The choice of the protection regime is the result of two effects: the damage effect evaluated under the unjust enrichment doctrine and the effect of market competition that occurs under the shadow of infringement. We find that large innovations are likely to be kept secret whereas small innovations are always patented. Furthermore, medium innovations are patented only when patent strength is sufficiently high. Finally, we investigate a class of licensing agreements used to settle patent disputes between patent holders and their competitors.

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Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00177619.

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Date of creation: May 2006
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Handle: RePEc:hal:cesptp:halshs-00177619

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Related research

Keywords: patent strength; trade secrecy; imitation cost; licensing;

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References

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  1. Scherer, F. M., 1983. "The propensity to patent," International Journal of Industrial Organization, Elsevier, vol. 1(1), pages 107-128, March.
  2. Lemley, Mark A. & Shapiro, Carl, 2004. "Probabilistic Patents," Competition Policy Center, Working Paper Series qt9xf1488p, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  3. Nancy T. Gallini, 1992. "Patent Policy and Costly Imitation," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 52-63, Spring.
  4. James Anton & Hillary Greene & Dennis Yao, 2006. "Policy Implications of Weak Patent Rights," NBER Chapters, in: Innovation Policy and the Economy, Volume 6, pages 1-26 National Bureau of Economic Research, Inc.
  5. David Encaoua & Abraham Hollander, 2002. "Competition Policy and Innovation," Oxford Review of Economic Policy, Oxford University Press, vol. 18(1), pages 63-79, Spring.
  6. Horstmann, Ignatius & MacDonald, Glenn M & Slivinski, Alan, 1985. "Patents as Information Transfer Mechanisms: To Patent or (Maybe) Not to Patent," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 837-58, October.
  7. repec:cup:cbooks:9780521816632 is not listed on IDEAS
  8. Encaoua, David & Guellec, Dominique & Martinez, Catalina, 2006. "Patent systems for encouraging innovation: Lessons from economic analysis," Research Policy, Elsevier, vol. 35(9), pages 1423-1440, November.
  9. Crampes, Claude, 1986. "Les inconvénients d’un dépôt de brevet pour une entreprise innovatrice," L'Actualité Economique, Société Canadienne de Science Economique, vol. 62(4), pages 521-534, décembre.
  10. James J. Anton & Dennis A. Yao, 2007. "Finding "Lost" Profits: An Equilibrium Analysis of Patent Infringement Damages," Journal of Law, Economics and Organization, Oxford University Press, vol. 23(1), pages 186-207, April.
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Citations

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Cited by:
  1. Fehmi Bouguezzi & Moez El Elj, 2010. "Vertical Integration and Patent Licensing in Upstream and Downstream Markets," Journal of Advanced Research in Management, ASERS Publishing, vol. 0(1), pages 4-17, June.
  2. Heijdra, B.J. & Ligthart, J.E., 2005. "Fiscal Policy, Monopolistic Competition and Finite Lives," Discussion Paper 2005-126, Tilburg University, Center for Economic Research.
  3. Rabah Amir & David Encaoua & Yassine Lefouili, 2013. "Optimal Licensing of Uncertain Patents in the Shadow of Litigation," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00847955, HAL.
  4. Rabah Amir & David Encaoua & Yassine Lefouili, 2013. "Optimal Licensing of Uncertain Patents in the Shadow of Litigation," Working Papers halshs-00847955, HAL.

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