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Patent Litigation as an Information-Transmission Mechanism

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  • Choi, Jay Pil

Abstract

Patent litigation reveals important information about the validity of the contested patent to other potential entrants. This paper explores the implications of such informational externalities for entry dynamics in the presence of multiple potential entrants. The nature of the entry game can be one of either waiting or preemption depending on the degree of patent protection. Therefore, the payoffs for the patentee and the initial imitator are discontinuous in the degree of patent protection. Furthermore, strengthening intellectual property rights is not necessarily desirable for the patentee. The analysis may also help explain the apparently puzzling practice of delaying patent suits. Copyright 1998 by American Economic Association.

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  • Choi, Jay Pil, 1998. "Patent Litigation as an Information-Transmission Mechanism," American Economic Review, American Economic Association, vol. 88(5), pages 1249-1263, December.
  • Handle: RePEc:aea:aecrev:v:88:y:1998:i:5:p:1249-63
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    References listed on IDEAS

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    1. Robert C. Marshall & Michael J. Meurer & Jean-Francois Richard, 1994. "Litigation Settlement and Collusion," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 211-239.
    2. Mansfield, Edwin & Schwartz, Mark & Wagner, Samuel, 1981. "Imitation Costs and Patents: An Empirical Study," Economic Journal, Royal Economic Society, vol. 91(364), pages 907-918, December.
    3. Jean Olson Lanjouw, 1994. "Economic Consequences of a Changing Litigation Environment: The Case of Patents," NBER Working Papers 4835, National Bureau of Economic Research, Inc.
    4. Paul Klemperer, 1990. "How Broad Should the Scope of Patent Protection Be?," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 113-130, Spring.
    5. Horstmann, Ignatius & MacDonald, Glenn M & Slivinski, Alan, 1985. "Patents as Information Transfer Mechanisms: To Patent or (Maybe) Not to Patent," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 837-858, October.
    6. Katz, Michael L & Shapiro, Carl, 1987. "R&D Rivalry with Licensing or Imitation," American Economic Review, American Economic Association, vol. 77(3), pages 402-420, June.
    7. Reiko Aoki & Jin-Li Hu, 1996. "Licensing vs. Litigation: Effect of the Legal System on Incentives to Innovate," Industrial Organization 9612002, University Library of Munich, Germany.
    8. Drew Fudenberg & Jean Tirole, 1985. "Preemption and Rent Equalization in the Adoption of New Technology," Review of Economic Studies, Oxford University Press, vol. 52(3), pages 383-401.
    9. Burns, Malcolm R, 1986. "Predatory Pricing and Acquisition Cost of Competitors," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 266-296, April.
    10. Nancy T. Gallini, 1992. "Patent Policy and Costly Imitation," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 52-63, Spring.
    11. Jean-Pierre Benoit, 1985. "Innovation and Imitation in a Duopoly," Review of Economic Studies, Oxford University Press, vol. 52(1), pages 99-106.
    12. Suzanne Scotchmer, 1991. "Standing on the Shoulders of Giants: Cumulative Research and the Patent Law," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 29-41, Winter.
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