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Shared Rights and Technological Progress

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  • Mitchell, Matthew
  • Zhang, Yuzhe

Abstract

We study how best to reward innovators whose work builds on earlier innovations. Incentives to innovate are obtained by offering innovators the opportunity to profit from their innovations. Since innovations compete, awarding rights to one innovator reduces the value of the rights to prior innovators. We show that the optimal allocation involves shared rights, where more than one innovator is promised a share of profits from a given innovation. We interpret such allocations in three ways: as patents that infringe on prior art, as licensing through an optimally designed ever-growing patent pool, and as randomization through litigation. We contrast the rate of technological progress under the optimal allocation with the outcome if sharing is prohibitively costly, and therefore must be avoided. Avoiding sharing initially slows progress, and leads to a more variable rate of technological progress.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36537.

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Date of creation: Jan 2012
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Handle: RePEc:pra:mprapa:36537

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Keywords: Cumulative Innovation; Patent; Licensing; Patent Pool; Litigation;

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  1. Choi, J.P., 1997. "Patent Litigation as an Information Transmission Mechanism," Discussion Paper 1997-17, Tilburg University, Center for Economic Research.
  2. Hugo Hopenhayn & Matthew Mitchell, 2012. "Rewarding Duopoly Innovators: The Price of Exclusivity," NBER Chapters, in: Standards, Patents and Innovations National Bureau of Economic Research, Inc.
  3. Shapiro, Carl, 2003. " Antitrust Limits to Patent Settlements," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 391-411, Summer.
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  8. Josh Lerner & Marcin Strojwas & Jean Tirole, 2007. "The design of patent pools: the determinants of licensing rules," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 610-625, 09.
  9. Henry, Emeric, 2010. "Promising the right prize," CEPR Discussion Papers 7758, C.E.P.R. Discussion Papers.
  10. Ted O'Donoghue & Suzanne Scotchmer & Jacques-François Thisse, 1998. "Patent Breadth, Patent Life, and the Pace of Technological Progress," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(1), pages 1-32, 03.
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  18. 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.
  19. Chou Teyu & Haller Hans, 2007. "The Division of Profit in Sequential Innovation for Probabilistic Patents," Review of Law & Economics, De Gruyter, vol. 3(2), pages 581-609, December.
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