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Should Good Patents Come in Small Packages? A Welfare Analysis of Intellectual Property Bundling

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  • Gilbert, Richard J
  • Katz, Michael L

Abstract

Intellectual property owners often hold the rights to several patents, each of which is essential to make or use a product. We compare the welfare properties of package licenses, under which a licensee pays the same fee regardless of the number of technologies licensed, with component licenses, under which each technology is licensed separately and there is no quantity discount. A central finding is that a long-term package license can induce incentives to invent around patents and invest in complementary assets that are closer to their socially optimal levels than are those induced by a long-term component license. We also identify settings in which a short-term license is a partial substitute for a package license and a prohibition on package licensing induces parties to adopt contracts that result in less efficient complementary investment because of hold-up.

Suggested Citation

  • Gilbert, Richard J & Katz, Michael L, 2007. "Should Good Patents Come in Small Packages? A Welfare Analysis of Intellectual Property Bundling," Competition Policy Center, Working Paper Series qt59x0t6tv, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  • Handle: RePEc:cdl:compol:qt59x0t6tv
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    References listed on IDEAS

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    Cited by:

    1. Packalen, Mikko, 2010. "Complements and potential competition," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 244-253, May.
    2. Langinier, Corinne, 2006. "Pool of Basic Patents and Follow-up Innovations," 2006 Annual meeting, July 23-26, Long Beach, CA 21127, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Layne-Farrar, Anne & Salinger, Michael A., 2016. "Bundling of RAND-committed patents," Research Policy, Elsevier, vol. 45(6), pages 1155-1164.
    4. Rockett, Katharine, 2010. "Property Rights and Invention," Handbook of the Economics of Innovation, Elsevier.
    5. Jay Pil Choi & Heiko Gerlach, 2015. "Patent pools, litigation, and innovation," RAND Journal of Economics, RAND Corporation, vol. 46(3), pages 499-523, September.

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