Per-Unit Royalty vs Fixed Fee: The Case of Weak Patents
AbstractThis paper explores a licensor's choice between charging a per-unit royalty or a fixed fee when her innovation is covered by a weak patent, i.e. a patent that is likely to be invali- dated by a court if challenged. Using a general model where the nature of competition is not speci ed, we show that the patent holder prefers to use a per-unit royalty scheme if the strategic e¤ect of an increase in a potential licensee's unit cost on the aggregate equi- librium pro t is positive. To show the mildness of the latter condition, we establish that it holds in a Cournot (resp. Bertrand) oligopoly with homegenous (resp. heterogenous) products under very general assumptions on the demands faced by rms. As a byproduct of our analysis, we contribute to the oligopoly literature by o¤ering some new insights of independent interest regarding the e¤ects of cost variations on Cournot and Bertrand equilibria.
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Date of creation: Feb 2011
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Keywords: Licensing Schemes; Weak Patents; Patent Litigation.;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-04 (All new papers)
- NEP-COM-2011-06-04 (Industrial Competition)
- NEP-INO-2011-06-04 (Innovation)
- NEP-IPR-2011-06-04 (Intellectual Property Rights)
- NEP-TID-2011-06-04 (Technology & Industrial Dynamics)
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.:
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- Macho, I. & Martinez-Giralt, X. & Perez-Castrillo, D., 1993.
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UFAE and IAE Working Papers
216.93, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Macho-Stadler, Ines & Martinez-Giralt, Xavier & David Perez-Castrillo, J., 1996. "The role of information in licensing contract design," Research Policy, Elsevier, vol. 25(1), pages 43-57, January.
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