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Intellectual Property Disclosure as 'Threat'

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  • Baker, Scott

    (University of North Carolina, School of Law)

  • Lee, Pak Yee

    (University of Leicester,Department of Economics)

  • Mezzetti, Claudio

    (University of Warwick,Department of Economics)

Abstract

This paper models the disclosure of knowledge via licensing to outsiders or fringe firms as a threat, useful in ensuring firms keep their commitments. We show that firms holding intellectual property are better able to enforce agreements than firms that don't. In markets requiring innovation to make a product, IP disclosure presents a more powerful threat than entry by the punishing firm alone. Occasionally, a punishing firm won't be able to translate its intellectual property into a full-blown product, making it impossible for it to enter the cheating firm's market and punish. Even if it can't make a product itself, the punishing firm can always credibly threaten to license the intellectual property it has on hand to someone else. With this intellectual property as a springboard, chances are at least one fringe firm will be able to do the translation, make the product and enter the cheating firm's market. In short, the potential for licensing increases the likelihood of punishment for uncooperative behavior.In the model, firms contract explicitly to ex-change knowledge and tacitly to coordinate the introduction of innovations to the marketplace. We find conditions under which firms can self-enforce both agreements. The enforcement conditions are weaker when (1) firms possess knowledge and (2) knowledge is easily transferable to other firms. The disclosure threat has implications for antitrust law generally, which are considered.

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Bibliographic Info

Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 881.

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Length: 24 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:wrk:warwec:881

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  1. James J. Anton & Dennis A. Yao, 2002. "The Sale of Ideas: Strategic Disclosure, Property Rights, and Contracting," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 513-531.
  2. Vincenzo Denicolo & Luigi Alberto Franzoni, 2004. "Patents, Secrets, and the First-Inventor Defense," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(3), pages 517-538, 09.
  3. Michael L. Katz & Carl Shapiro, 1985. "On the Licensing of Innovations," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 504-520, Winter.
  4. Sudipto Bhattacharya & Sergei Guriev, 2005. "Patents vs trade secrets: knowledge licensing and spillover," LSE Research Online Documents on Economics 444, London School of Economics and Political Science, LSE Library.
  5. James J. Anton & Dennis A. Yao, 2004. "Little Patents and Big Secrets: Managing Intellectual Property," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 1-22, Spring.
  6. Anton, James J & Yao, Dennis A, 1994. "Expropriation and Inventions: Appropriable Rents in the Absence of Property Rights," American Economic Review, American Economic Association, vol. 84(1), pages 190-209, March.
  7. Bernstein, Lisa, 1992. "Opting Out of the Legal System: Extralegal Contractual Relations in the Diamond Industry," The Journal of Legal Studies, University of Chicago Press, vol. 21(1), pages 115-57, January.
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  9. Bhattacharya, S. & Glazer, J. & Sappington, D., 1991. "Licensing and the Sharing of Knowledge in Research Joint Ventures," Papers 9120, Tilburg - Center for Economic Research.
  10. James J. Anton & Dennis A. Yao, 2003. "Patents, Invalidity, and the Strategic Transmission of Enabling Information," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(2), pages 151-178, 06.
  11. David D. Friedman & William M. Landes & Richard A. Posner, 1991. "Some Economics of Trade Secret Law," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 61-72, Winter.
  12. D'ASPREMONT, Claude & BHATTACHARYA, Sudipto & GERARD-VARET, Louis-André, . "Bargaining and sharing innovative knowledge," CORE Discussion Papers RP -1465, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  13. Joshua S. Cans & Scott Stern, 2000. "Incumbency and R&D Incentives: Licensing the Gale of Creative Destruction," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(4), pages 485-511, December.
  14. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
  15. Baker, Scott & Mezzetti, Claudio, 2005. "Disclosure as a Strategy in the Patent Race," Journal of Law and Economics, University of Chicago Press, vol. 48(1), pages 173-94, April.
  16. Anton, James J & Yao, Dennis A, 2002. "The Sale of Ideas: Strategic Disclosure, Property Rights, and Contracting," Review of Economic Studies, Wiley Blackwell, vol. 69(3), pages 513-31, July.
  17. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  18. Posner, Eric A, 1998. "Symbols, Signals, and Social Norms in Politics and the Law," The Journal of Legal Studies, University of Chicago Press, vol. 27(2), pages 765-98, June.
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