How Strong Are Weak Patents?
We analyze patent licensing by a patent holder to downstream technology users. We study how the structure and level of royalties depends on the patentâ€™s strength, i.e., the probability it would be upheld in court. We examine the social value of determining patent validity before licensing, in terms of deadweight loss (ex post) and innovation incentives (ex ante). When downstream users do not compete against each other or the patent holder, license fees approximate the license fee for an ironclad patent times the patent strength, and reviewing validity before licensing would be unproductive (in expected value). But when downstream users compete, two-part tariffs for weak patents have high running royalty rates, combined with a negative fixed fee, and examining patent validity generates social benefits, both ex post and ex ante. Even without negative fixed fees, rival downstream firms will accept relatively high running royalties, so determining patent validity prior to licensing is socially beneficial.
|Date of creation:||01 Jan 2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (510) 642-1922
Fax: (510) 642-5018
Web page: http://www.escholarship.org/repec/iber_cpc/Email:
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Benjamin Chiao & Josh Lerner & Jean Tirole, 2007.
"The rules of standard-setting organizations: an empirical analysis,"
RAND Journal of Economics,
RAND Corporation, vol. 38(4), pages 905-930, December.
- Chiao, Benjamin & Lerner, Josh & Tirole, Jean, 2006. "The Rules of Standard Setting Organizations: an Empirical Analysis," IDEI Working Papers 388, Institut d'Économie Industrielle (IDEI), Toulouse.
- Benjamin Chiao & Josh Lerner & Jean Tirole, 2005. "The Rules of Standard Setting Organizations: An Empirical Analysis," NBER Working Papers 11156, National Bureau of Economic Research, Inc.
- Chiao, Benjamin & Lerner, Josh & Tirole, Jean, 2007. "The Rules of Standard Setting Organizations: An Empirical Analysis," CEPR Discussion Papers 6141, C.E.P.R. Discussion Papers.
- Sugato Bhattacharyya & Francine Lafontaine, 1995. "Double-Sided Moral Hazard and the Nature of Share Contracts," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 761-781, Winter.
- Jay Pil Choi, 2005. "Live and Let Live: A Tale of Weak Patents," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 724-733, 04/05.
- Joseph Farrell & Carl Shapiro, 1990. "Asset Ownership and Market Structure in Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 21(2), pages 275-292, Summer.
- Michael J. Meurer, 1989. "The Settlement of Patent Litigation," RAND Journal of Economics, The RAND Corporation, vol. 20(1), pages 77-91, Spring.
- Choi, J.P., 1997.
"Patent Litigation as an Information Transmission Mechanism,"
1997-17, Tilburg University, Center for Economic Research.
- Choi, Jay Pil, 1998. "Patent Litigation as an Information-Transmission Mechanism," American Economic Review, American Economic Association, vol. 88(5), pages 1249-63, December.
- Reiko Aoki & Jin-Li Hu, 1999. "Licensing vs. Litigation: The Effect of the Legal System on Incentives to Innovate," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(1), pages 133-160, 03.
- Patrick Rey & Thibaud Vergé, 2003.
"Bilateral Control with Vertical Contracts,"
- Patrick Rey & Thibaud Verge, 2002. "Bilateral Control with Vertical Contracts," The Centre for Market and Public Organisation 02/048, Department of Economics, University of Bristol, UK.
- Rey, Patrick & Vergé, Thibaud, 2003. "Bilateral Control with Vertical Contracts," IDEI Working Papers 202, Institut d'Économie Industrielle (IDEI), Toulouse.
- McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-30, March.
- Chun-Hsiung Liao & Debapriya Sen, 2005. "Subsidy In Licensing: Optimality And Welfare Implications," Manchester School, University of Manchester, vol. 73(3), pages 281-299, 06.
- Ilya Segal, 1999. "Contracting With Externalities," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 337-388, May.
- Katz, Michael L & Shapiro, Carl, 1986. "How to License Intangible Property," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 567-89, August.
- Anand, Bharat N & Khanna, Tarun, 2000. "The Structure of Licensing Contracts," Journal of Industrial Economics, Wiley Blackwell, vol. 48(1), pages 103-35, March.
- Marco, Alan C., 2005. "Learning by Suing: Structural Estimates of Court Errors in Patent Litigation," Vassar College Department of Economics Working Paper Series 68, Vassar College Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:cdl:compol:qt8vg425vj. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Schiff)
If references are entirely missing, you can add them using this form.