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Patent Litigation and the Role of Enforcement Insurance

Author

Listed:
  • Llobet Gerard

    (Centro de Estudios Monetarios y Financieros (CEMFI), Madrid)

  • Suarez Javier

    (CEMFI, Centre for Economic Policy Research (CEPR), European Corporate Governance Institute (ECGI))

Abstract

We study the effects of patent enforcement insurance when used by an incumbent patent holder in order to increase its incentives to oppose alleged infringers (entrants). By covering some of the legal costs ex-ante, the incumbent can increase its commitment to litigate and, as a result, deter some potential entrants and, in case of entry, induce a more profitable settlement deal. We identify the circumstances in which it is optimal for the incumbent to undertake patent enforcement insurance, typically with a deductible that either prevents litigation from occurring in equilibrium or trades off the ex-post costs of excessive litigation with the aforementioned strategic gains. We assess the impact of patent enforcement insurance on equilibrium outcomes across different legal-cost allocation rules and parameterizations of the model.

Suggested Citation

  • Llobet Gerard & Suarez Javier, 2012. "Patent Litigation and the Role of Enforcement Insurance," Review of Law & Economics, De Gruyter, vol. 8(3), pages 789-821, December.
    • Handle: RePEc:bpj:rlecon:v:8:y:2012:i:3:p:789-821:n:2
    DOI: 10.1515/1555-5879.1461
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    References listed on IDEAS

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    Cited by:

    1. Bernhard Ganglmair & Christian Helmers & Brian J Love, 2022. "The Effect of Patent Litigation Insurance: Theory and Evidence from NPEs [“Valuable Patents]," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 38(3), pages 741-773.
    2. Anne Duchêne, 2017. "Patent Litigation Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(2), pages 631-660, June.
    3. Emons, Winand & Fluet, Claude, 2016. "Why plaintiffs’ attorneys use contingent and defense attorneys fixed fee contracts," International Review of Law and Economics, Elsevier, vol. 47(C), pages 16-23.
    4. Jorge Lemus & Emil Temnyalov & John L. Turner, 2021. "Liability Insurance: Equilibrium Contracts under Monopoly and Competition," American Economic Journal: Microeconomics, American Economic Association, vol. 13(1), pages 83-115, February.
    5. Rasmus Arler Bogetoft & Peter Bogetoft, 2022. "Market entrance, patents, and preliminary injunctions: a model of pharmaceutical patent litigation," European Journal of Law and Economics, Springer, vol. 53(3), pages 379-423, June.

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