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The Effect of Litigation on Intellectual Property and Welfare

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This paper shows that “wasteful” litigation about intellectual property may be welfare enhancing. The aim of an intellectual property protection system is to solve the trade-off between exante innovation incentive and ex-post monopoly welfare loss. The litigation about intellectual property in court decreases the expected rent from intellectual property, therefore reducing the incentive to innovate in the first place leading to a negative effect on social welfare. Yet the legal contest may have the positive welfare effect of breaking the monopoly and allowing an entrant into the market, thus lowering prices and reducing the welfare loss of monopoly. If the welfare effect of increasing competition outweighs the first effect of reduced research, a litigation contest is welfare increasing.

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File URL: http://homepage.univie.ac.at/Papers.Econ/RePEc/vie/viennp/vie0511.pdf
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Bibliographic Info

Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 0511.

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Date of creation: Dec 2005
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Handle: RePEc:vie:viennp:0511

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Web page: http://www.univie.ac.at/vwl

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  1. Michael R. Baye & Dan Kovenock & Casper De Vries, 2000. "Comparative Analysis of Litigation Systems: An Auction-Theoretic Approach," CESifo Working Paper Series 373, CESifo Group Munich.
  2. Glenn C. Loury, 1976. "Market Structure and Innovation," Discussion Papers 256, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Arye L. Hillman & John G. Riley, 1989. "Politically Contestable Rents And Transfers," Economics and Politics, Wiley Blackwell, vol. 1(1), pages 17-39, 03.
  4. Stephen M. Maurer & Suzanne Scotchmer, 2003. "Procuring Knowledge," NBER Working Papers 9903, National Bureau of Economic Research, Inc.
  5. SHAVELL, Steven & VAN YPERSELE, Tanguy, . "Rewards versus intellectual property rights," CORE Discussion Papers RP -1597, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  8. Farmer, Amy & Pecorino, Paul, 1999. " Legal Expenditure as a Rent-Seeking Game," Public Choice, Springer, vol. 100(3-4), pages 271-88, September.
  9. Scherer, F. M. & Harhoff, Dietmar, 2000. "Technology policy for a world of skew-distributed outcomes," Research Policy, Elsevier, vol. 29(4-5), pages 559-566, April.
  10. Lanjouw, Jean O & Schankerman, Mark, 2001. "Characteristics of Patent Litigation: A Window on Competition," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 129-51, Spring.
  11. Martin Kolmar & martin.kolmar@unisg.ch & Andreas Wagener, 2012. "Contests and the Private Production of Public Goods," Southern Economic Journal, Southern Economic Association, vol. 79(1), pages 161-179, July.
  12. Klemperer, Paul, 1990. "How Broad Should the Scope of Patent Protection Be?," CEPR Discussion Papers 392, C.E.P.R. Discussion Papers.
  13. Nordhaus, William D, 1972. "The Optimum Life on a Patent: Reply," American Economic Review, American Economic Association, vol. 62(3), pages 428-31, June.
  14. Denicolo, Vincenzo, 1996. "Patent Races and Optimal Patent Breadth and Length," Journal of Industrial Economics, Wiley Blackwell, vol. 44(3), pages 249-65, September.
  15. 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.
  16. Waterson, Michael, 1990. "The Economics of Product Patents," American Economic Review, American Economic Association, vol. 80(4), pages 860-69, September.
  17. 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.
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