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Innovation in the Shadow of Patent Litigation

  • Yann Ménière


  • Sarah Parlane


We analyze non-cooperative R&D investment by two firms that already hold patents that they can assert against each other with probabilistic success. The market structure results from stochastic innovation and patent litigation. Depending on the level of infringement fees, we highlight positive and negative effects of litigation threats on innovation. We define an appropriate regulatory structure of infringement fees that will implement socially efficient R&D investments in the case of symmetric and asymmetric patent portfolios.

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Article provided by Springer & The Industrial Organization Society in its journal Review of Industrial Organization.

Volume (Year): 32 (2008)
Issue (Month): 2 (March)
Pages: 95-111

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Handle: RePEc:kap:revind:v:32:y:2008:i:2:p:95-111
DOI: 10.1007/s11151-008-9167-y
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  1. James Bessen & Robert M Hunt, 2004. "An Empirical Look at Software Patents," Levine's Working Paper Archive 122247000000000167, David K. Levine.
  2. 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.
  3. Schankerman, Mark & Scotchmer, Suzanne, 2005. "Still Looking for Lost Profits: The Case of Horizontal Competition," Competition Policy Center, Working Paper Series qt5746p162, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  4. Schankerman, Mark & Scotchmer, Suzanne, 2001. "Damages and Injunctions in Protecting Intellectual Property," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 199-220, Spring.
  5. James J. Anton & Dennis A. Yao, 2007. "Finding "Lost" Profits: An Equilibrium Analysis of Patent Infringement Damages," Journal of Law, Economics and Organization, Oxford University Press, vol. 23(1), pages 186-207, April.
  6. Anand, Bharat N & Khanna, Tarun, 2000. "The Structure of Licensing Contracts," Journal of Industrial Economics, Wiley Blackwell, vol. 48(1), pages 103-35, March.
  7. Bessen, James, 2004. "Holdup and licensing of cumulative innovations with private information," Economics Letters, Elsevier, vol. 82(3), pages 321-326, March.
  8. Reitzig, Markus & Henkel, Joachim & Heath, Christopher, 2007. "On sharks, trolls, and their patent prey--Unrealistic damage awards and firms' strategies of "being infringed"," Research Policy, Elsevier, vol. 36(1), pages 134-154, February.
  9. James Bessen, 2004. "Patent Thickets: Strategic Patenting of Complex Technologies," Working Papers 0401, Research on Innovation.
  10. Llobet, Gerard, 2003. "Patent litigation when innovation is cumulative," International Journal of Industrial Organization, Elsevier, vol. 21(8), pages 1135-1157, October.
  11. Chaim Fershtman & Morton I. Kamien, 1990. "Cross Licensing of Complementary Technologies," Discussion Papers 866, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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