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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 Panthéon-Sorbonne - Paris I, 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 Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

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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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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00415747_v1.

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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_v1

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Related research
Keywords: Licensing Schemes ; Probabilistic Rights ; Patent Litigation;

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References listed on IDEAS
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  1. 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.
  2. David Encaoua & Abraham Hollander, 2002. "Competition Policy and Innovation," Oxford Review of Economic Policy, Oxford University Press, vol. 18(1), pages 63-79, Spring.
    Other versions:
  3. Katharine Rockett, 2009. "Property Rights and Invention," Economics Discussion Papers 663, University of Essex, Department of Economics. [Downloadable!]
  4. Joseph Farrell & Carl Shapiro, 2008. "How Strong Are Weak Patents?," American Economic Review, American Economic Association, vol. 98(4), pages 1347-69, September. [Downloadable!]
  5. Crampes, Claude & Langinier, Corinne, 2002. "Litigation and Settlement in Patent Infringement Cases," Staff General Research Papers 5231, Iowa State University, Department of Economics.
    Other versions:
  6. Stuart J. H. Graham & Bronwyn H. Hall & Dietmar Harhoff & David C. Mowery, 2003. "Post-Issue Patent "Quality Control": A Comparative Study of US Patent Re-examinations and European Patent Oppositions," Industrial Organization 0303009, EconWPA. [Downloadable!]
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  7. Sen, Debapriya, 2005. "Fee versus royalty reconsidered," Games and Economic Behavior, Elsevier, vol. 53(1), pages 141-147, October. [Downloadable!] (restricted)
  8. 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. [Downloadable!] (restricted)
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This page was last updated on 2009-11-28.

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