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Licensing weak patents

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Author Info

  • David Encaoua

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • Yassine Lefouili

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

Abstract

In this paper, we revisit the issue of licensing ‘weak' patents under the shadow of litigation. Departing from the seminal paper by Farrell and Shapiro [2008], we consider innovations of any size and not only ‘small' innovations, and we allow the number of licensees to be less than the number of firms in the downstream industry. It is shown that the optimal two-part tariff license from the patent holder's perspective may either deter or trigger litigation, and conditions underwhich each case arises are provided. We also reexamine the claim that the licensing revenues from ‘weak' patents overcompensate the patent holder relative to what a natural benchmarkwould command. Finally we suggest two policy levers that may alleviate the harm raised by the licensing of ‘weak' patents.

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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-00415747.

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Date of creation: Sep 2009
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Publication status: Published, Journal of Industrial Economics, 2009, 57, 3, 492-525
Handle: RePEc:hal:cesptp:halshs-00415747

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00415747
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Related research

Keywords: Licensing Schemes ; Probabilistic Rights ; Patent Litigation;

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References

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  1. Joseph Farrell & Carl Shapiro, 2008. "How Strong Are Weak Patents?," American Economic Review, American Economic Association, vol. 98(4), pages 1347-69, September.
  2. Claude Crampes & Corinne Langinier, 2002. "Litigation and Settlement in Patent Infringement Cases," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 258-274, Summer.
  3. Lanjouw, Jean O & Schankerman, Mark, 2001. "Characteristics of Patent Litigation: A Window on Competition," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 129-51, Spring.
  4. Graham, Stuart J. H. & Hall, Bronwyn H. & Harhoff, Dietmar & Mowery, David C., 2002. "Post-Issue Patent "Quality Control": A Comparative Study of US Patent Re-examinations and European Patent Oppositions," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt8bs830w9, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  5. Sen, Debapriya & Tauman, Yair, 2007. "General licensing schemes for a cost-reducing innovation," Games and Economic Behavior, Elsevier, vol. 59(1), pages 163-186, April.
  6. Fevrier, Philippe & Linnemer, Laurent, 2004. "Idiosyncratic shocks in an asymmetric Cournot oligopoly," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 22(6), pages 835-848, June.
  7. Amir, Rabah & Wooders, John, 2000. "One-Way Spillovers, Endogenous Innovator/Imitator Roles, and Research Joint Ventures," Games and Economic Behavior, Elsevier, vol. 31(1), pages 1-25, April.
  8. David Encaoua & Abraham Hollander, 2002. "Competition Policy and Innovation," Oxford Review of Economic Policy, Oxford University Press, vol. 18(1), pages 63-79, Spring.
  9. Lemley, Mark A & Shapiro, Carl, 2007. "Patent Hold-Up and Royalty Stacking," Competition Policy Center, Working Paper Series, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley qt8638s257, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  10. Sen, Debapriya, 2005. "Fee versus royalty reconsidered," Games and Economic Behavior, Elsevier, vol. 53(1), pages 141-147, October.
  11. Reiko Aoki & Jin-Li Hu, 1999. "Licensing vs. Litigation: The Effect of the Legal System on Incentives to Innovate," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(1), pages 133-160, 03.
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Cited by:
  1. Xue, Minggao & Su, Lili, 2011. "Licensing to a durable-good duopoly in patent litigation," Economic Modelling, Elsevier, vol. 28(3), pages 1186-1194, May.
  2. Rabah Amir & David Encaoua & Yassine Lefouili, 2011. "Per-Unit Royalty vs Fixed Fee: The Case of Weak Patents," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00595493, HAL.
  3. repec:hal:wpaper:halshs-00595493 is not listed on IDEAS
  4. 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.
  5. repec:hal:wpaper:halshs-00847955 is not listed on IDEAS

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