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Fences and competition in patent races

  • Schneider, Cédric

This paper studies the behavior of firms facing the decision to create a patent fence, defined as a patent portfolio of substitutable technologies. We set up a patent race model, where firms can decide either to patent their inventions, or to rely on secrecy. It is shown that firms build patent fences, when the duopoly profits net of R&D costs are positive. We also demonstrate that in this context, a firm will rely on secrecy when the speed of discovery of the subsequent invention is high compared to the competitor's. Furthermore, we compare the model under the First-to-Invent and First-to-File legal rules. Finally, we analyze the welfare implications of patent fences.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 26 (2008)
Issue (Month): 6 (November)
Pages: 1348-1364

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Handle: RePEc:eee:indorg:v:26:y:2008:i:6:p:1348-1364
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  1. Richard A. Jensen & Marie Thursby, 1991. "Patent Races, Product Standards, and International Competition," NBER Working Papers 3870, National Bureau of Economic Research, Inc.
  2. Nancy T. Gallini, 1992. "Patent Policy and Costly Imitation," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 52-63, Spring.
  3. Lerner, Josh & Tirole, Jean, 2003. "Efficient Patent Pools," IDEI Working Papers 211, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Carl Shapiro, 2003. "Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard-Setting," Law and Economics 0303005, EconWPA.
  5. Mansfield, Edwin, 1985. "How Rapidly Does New Industrial Technology Leak Out?," Journal of Industrial Economics, Wiley Blackwell, vol. 34(2), pages 217-23, December.
  6. Suzanne Scotchmer & Jerry Green, 1990. "Novelty and Disclosure in Patent Law," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 131-146, Spring.
  7. Wesley M Cohen & Richard R Nelson & John P Walsh, 2003. "Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (Or Not)," Levine's Working Paper Archive 618897000000000624, David K. Levine.
  8. Bronwyn H. Hall, 2004. "Exploring the Patent Explosion," NBER Working Papers 10605, National Bureau of Economic Research, Inc.
  9. 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.
  10. Bronwyn H. Hall & Stuart J.H. Graham & Dietmar Harhoff, 2003. "Prospects for Improving U.S. Patent Quality via Post-grant Opposition," NBER Working Papers 9731, National Bureau of Economic Research, Inc.
  11. Nancy T. Gallini, 2002. "The Economics of Patents: Lessons from Recent U.S. Patent Reform," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 131-154, Spring.
  12. Samuel Kortum & Josh Lerner, 1997. "Stronger Protection or Technological Revolution: What is Behind the Recent Surge in Patenting?," NBER Working Papers 6204, National Bureau of Economic Research, Inc.
  13. Corinne Langinier, 2005. "Using patents to mislead rivals," Canadian Journal of Economics, Canadian Economics Association, vol. 38(2), pages 520-545, May.
  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.
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