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Licensing Probabilistic Patents and Liability Rules: The Duopoly Case

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Author Info
Vargas Barrenechea, Martin

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Abstract

In this paper a dynamic game is used to compare licensing of a cost reduction innovations under lost profits (LP) and unjust enrichment (UE), both damage rules used by courts in the calculation of damages when a patent has been infringed. The innovation, whose property right belongs to a firm (patent holder) has a positive probability to be declared invalid in a court. The market is composed by two homogeneous firms that compete in quantities (Cournot). Licensing by using royalty rates is preferred compared with fixed fees, it is observable little licensing (just big innovations). LP is not always better or worst than UE, but the major of the cases consumers and society are better off under UE and in the major of cases LP benefits more to the patent holder.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9925.

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Date of creation: Dec 2008
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Handle: RePEc:pra:mprapa:9925

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Related research
Keywords: Patents; innovation economics; probabilistic property rights; damage rules;

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Find related papers by JEL classification:
L0 - Industrial Organization - - General
K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
O3 - Economic Development, Technological Change, and Growth - - Technological Change

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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.:
  1. Schankerman, Mark & Scotchmer, Suzanne, 2001. "Damages and Injunctions in Protecting Intellectual Property," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 199-220, Spring.
  2. Joseph Farrell & Carl Shapiro, 2008. "How Strong Are Weak Patents?," American Economic Review, American Economic Association, vol. 98(4), pages 1347-69, September. [Downloadable!]
  3. Jay Pil Choi, 2006. "How Reasonable is the ‘Reasonable’ Royalty Rate? Damage Rules and Probabilistic Intellectual Property Rights," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  4. Kamien, Morton I & Tauman, Yair, 2002. "Patent Licensing: The Inside Story," Manchester School, University of Manchester, vol. 70(1), pages 7-15, January. [Downloadable!] (restricted)
  5. Wang, X. Henry, 1998. "Fee versus royalty licensing in a Cournot duopoly model," Economics Letters, Elsevier, vol. 60(1), pages 55-62, July. [Downloadable!] (restricted)
  6. 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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