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Economic Consequences of a Changing Litigation Environment: The Case of Patents

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  • Jean Olson Lanjouw
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    Abstract

    A model of patent infringement is developed to analyze the relationship between litigation and aspects of the legal environment such as the probability that the patent is found valid, the size of legal fees and their allocation across agents. Potential challengers first decide whether to infringe and then the patentee decides whether or not to prosecute. The outcome of this game has a fundamental impact on the value of patent protection to a patentee. This model is then linked to a patent renewal model which explicitly incorporates the legal parameters of interest from the litigation game. Estimates of the renewal model allow the empirical estimation of the private value of a patent protection. Simulations are presented for Germany which show the quantitative impact of changes in the legal environment on the value generated by the patent system and hence the incentives created for innovation.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4835.

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    Date of creation: Aug 1994
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    Handle: RePEc:nbr:nberwo:4835

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    1. Jean Olson Lanjouw, 1992. "Under Threat: Potential Competition, Litigation and the Private Value of Patent Protection," STICERD - Economics of Industry Papers 06, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    2. Pakes, Ariel S, 1986. "Patents as Options: Some Estimates of the Value of Holding European Patent Stocks," Econometrica, Econometric Society, vol. 54(4), pages 755-84, July.
    3. Ariel Pakes & Mark Schankerman, 1979. "The Rate of Obsolescence Of Knowledge, Research Gestation Lags, and the Private Rate of Return to Research Resources," NBER Working Papers 0346, National Bureau of Economic Research, Inc.
    4. Claude d'Aspremont & Alexis Jacquemin & Jean Jaskold Gabszewicz & John A. Weymark, 1983. "On the Stability of Collusive Price Leadership," Canadian Journal of Economics, Canadian Economics Association, vol. 16(1), pages 17-25, February.
    5. Glenn C. Loury, 1976. "Market Structure and Innovation," Discussion Papers 256, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    6. Reinganum, Jennifer F., 1989. "The timing of innovation: Research, development, and diffusion," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 14, pages 849-908 Elsevier.
    7. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
    8. Kathryn E. Spier, 1994. "Pretrial Bargaining and the Design of Fee-Shifting Rules," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 197-214, Summer.
    9. Simon Kuznets, 1962. "Inventive Activity: Problems of Definition and Measurement," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 19-52 National Bureau of Economic Research, Inc.
    10. Richard C. Levin & Alvin K. Klevorick & Richard R. Nelson & Sidney G. Winter, 1987. "Appropriating the Returns from Industrial Research and Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(3), pages 783-832.
    11. Sullivan, Richard J, 1994. "Estimates of the Value of Patent Rights in Great Britain and Ireland, 1852-1876," Economica, London School of Economics and Political Science, vol. 61(241), pages 37-58, February.
    12. Stanley M. Besen & Leo J. Raskind, 1991. "An Introduction to the Law and Economics of Intellectual Property," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 3-27, Winter.
    13. Cooter, Robert D & Rubinfeld, Daniel L, 1989. "Economic Analysis of Legal Disputes and Their Resolution," Journal of Economic Literature, American Economic Association, vol. 27(3), pages 1067-97, September.
    14. Jean Olson Lanjouw, 1993. "Patent Protection: Of What Value and for How Long?," NBER Working Papers 4475, National Bureau of Economic Research, Inc.
    15. Edwin Mansfield, 1986. "Patents and Innovation: An Empirical Study," Management Science, INFORMS, vol. 32(2), pages 173-181, February.
    16. Richard C. Levin & Alvin K. Klevorick & Richard R. Nelson & Sidney G. Winter, 1988. "Appropriating the Returns from Industrial R&D," Cowles Foundation Discussion Papers 862, Cowles Foundation for Research in Economics, Yale University.
    17. Jean Olson Lanjouw, 1992. "Under threat: potential competition, litigation and the private value of patent protection," LSE Research Online Documents on Economics 6777, London School of Economics and Political Science, LSE Library.
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    Cited by:
    1. Marco, Alan C. & Rausser, Gordon C, 2002. "Complementarities and spill-overs in mergers: an empirical investigation using patent data," CUDARE Working Paper Series 930R, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
    2. Marco, Alan C., 2005. "The option value of patent litigation: Theory and evidence," Review of Financial Economics, Elsevier, vol. 14(3-4), pages 323-351.
    3. Marco, Alan C., 2005. "Learning by Suing: Structural Estimates of Court Errors in Patent Litigation," Vassar College Department of Economics Working Paper Series 68, Vassar College Department of Economics.
    4. Hall, Bronwyn H. & Ham, Rose Marie, 1999. "The Patent Paradox Revisited: Determinants of Patenting in the US Semiconductor Industry, 1980-94," Department of Economics, Working Paper Series qt2nk0w2hz, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    5. Joshua S. Gans & Scott Stern, 2000. "When Does Funding Research by Smaller Firms Bear Fruit?: Evidence from the SBIR Program," NBER Working Papers 7877, National Bureau of Economic Research, Inc.
    6. Hall, Bronwyn H. & Ham Ziedonis, Rosemarie, 1999. "Patent Paradox Revisited: Determinants of Patenting in the U.S. Semiconductor Industry, 1980-94," Competition Policy Center, Working Paper Series qt1rg1088v, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
    7. Adam B. Jaffe, 1999. "The U.S. Patent System in Transition: Policy Innovation and the Innovation Process," NBER Working Papers 7280, National Bureau of Economic Research, Inc.
    8. Marco, Alan C., 2006. "The Value of Certainty in Intellectual Property Rights: Stock Market Reactions to Patent Litigation," Vassar College Department of Economics Working Paper Series 82, Vassar College Department of Economics.
    9. Gans, Joshua, 1968- & Stern, Scott, 1969-, 1998. "Incumbency and R&D incentives : licensing the gale of creative distruction," Working papers WP 4008-98., Massachusetts Institute of Technology (MIT), Sloan School of Management.

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