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Profit Neutrality in Licensing: The Boundary between Antitrust Law and Patent Law

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  • Stephen M. Maurer
  • Suzanne Scotchmer

Abstract

For over a century, courts and commentators have struggled to find principles that reconcile patent and antitrust law, especially as to patent licensing. We interpret case law and commentary to arrive at three unifying principles for acceptable terms of license. Profit neutrality' holds that patent rewards should not depend on the rightholder's ability to work the patent himself. Derived reward' holds that the patent holder's profits should be earned, if at all, from the social value created by the invention. Minimalism' holds that licensing contracts should not contain more restrictions than are necessary to achieve neutrality. We argue that these principles largely rationalize important decisions of the twentieth century. They also justify the Supreme Court's controversial General Electric decision, which holds that patentholders can set prices charged by their licensees.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10546.

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Date of creation: Jun 2004
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Publication status: published as Maurer, S. and S. Scotchmer. "Profit Neutrality in Licensing: The Boundary Between Antitrust Law and Patent Law." American Law and Economics Review 8: 476-522. 2006.
Handle: RePEc:nbr:nberwo:10546

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  1. Paul Klemperer, 1990. "How Broad Should the Scope of Patent Protection Be?," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 113-130, Spring.
  2. O'DONOGHUE, Ted & SCOTCHMER, Suzanne & THISSE, Jacques-François, . "Patent breadth, patent life, and the pace of technological progress," CORE Discussion Papers RP -1314, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Suzanne Scotchmer, 1991. "Standing on the Shoulders of Giants: Cumulative Research and the Patent Law," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 29-41, Winter.
  4. Carl Shapiro, 2003. "Antitrust Limits to Patent Settlements," Law and Economics 0303004, EconWPA.
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Cited by:
  1. Alberto BUCCI, 2004. "Economic growth in an enlarged Europe: the human capital and R&D dimensions," Departmental Working Papers 2004-22, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  2. Matthew D. Henry & John L. Turner, 2010. "PATENT DAMAGES AND SPATIAL COMPETITION -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 58(2), pages 279-305, 06.
  3. Llobet, Gerard & Suarez, Javier, 2005. "Financing and the Protection of Innovators," CEPR Discussion Papers 4944, C.E.P.R. Discussion Papers.
  4. Gerlagh, Reyer & Kverndokk, Snorre & Rosendahl, Knut Einar, 2014. "The optimal time path of clean energy R&D policy when patents have finite lifetime," Journal of Environmental Economics and Management, Elsevier, vol. 67(1), pages 2-19.
  5. Reyer Gerlagh & Snorre Kverndokk & Knut Einar Rosendah, 2008. "Linking Environmental and Innovation Policy," Working Papers 2008.53, Fondazione Eni Enrico Mattei.
  6. Schankerman, Mark & Scotchmer, Suzanne, 2005. "Still Looking for Lost Profits: The Case of Horizontal Competition," Department of Economics, Working Paper Series qt45r7776m, Department of Economics, Institute for Business and Economic Research, UC Berkeley.

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