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Choosing Intellectual Protection: Imitation, Patent Strength and Licensing

In: Contributions in Memory of Zvi Griliches

  • David Encaoua
  • Yassine Lefouili

This paper investigates the choice of intellectual property protection for a process innovation. We set up a multi-stage model in which choosing between patent and trade secrecy is affected by three parameters : the patent strength defined as the probability that the right granted by the patent office to the innovator is upheld by the court, the ratio of imitation cost to innovation cost, and the innovation size defined as the extent of the cost reduction. We show that the choice of the protection regime is the result of two effects - the competition effect and the damage effect - and we analyze the influence of the three previous parameters on these effects. We find that large innovations are likely to be kept secret whereas small innovations are always patented. Furthermore, medium innovations are patented only when patent strength is high enough. Finally, we investigate patent licensing agreements that are used as a way to settle disputes between patentholders and their competitors.

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This chapter was published in:
  • Jacques Mairesse & Manuel Trajtenberg, 2010. "Contributions in Memory of Zvi Griliches," NBER Books, National Bureau of Economic Research, Inc, number mair10-1, October.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12235.
    Handle: RePEc:nbr:nberch:12235
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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    1. James Anton & Hillary Greene & Dennis Yao, 2006. "Policy Implications of Weak Patent Rights," NBER Chapters, in: Innovation Policy and the Economy, Volume 6, pages 1-26 National Bureau of Economic Research, Inc.
    2. David Encaoua & Abraham Hollander, 2002. "Competition Policy and Innovation," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00185360, HAL.
    3. 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.
    4. David Encaoua & Dominique Guellec & Catalina Martínez, 2006. "Patent Systems for Encouraging Innovation: Lessons from Economic Analysis," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00177614, HAL.
    5. Crampes, Claude, 1986. "Les inconvénients d’un dépôt de brevet pour une entreprise innovatrice," L'Actualité Economique, Société Canadienne de Science Economique, vol. 62(4), pages 521-534, décembre.
    6. 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.
    7. Nancy T. Gallini, 1992. "Patent Policy and Costly Imitation," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 52-63, Spring.
    8. Scherer, F. M., 1983. "The propensity to patent," International Journal of Industrial Organization, Elsevier, vol. 1(1), pages 107-128, March.
    9. F. M. Scherer, 2005. "Patents," Books, Edward Elgar, number 3903, March.
    10. Mark A. Lemley & Carl Shapiro, 2005. "Probabilistic Patents," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 75-98, Spring.
    11. 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 837-58, October.
    12. 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.
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