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Broad Cross-License Agreements andPersuasive Patent Litigation: Theory andEvidence from the Semiconductor Industry

  • Alberto Galasso
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    In many industries broad cross-license agreements are considered a useful method toobtain freedom to operate and to avoid patent litigation. In this paper I study thepreviously neglected dynamic trade-off between litigating and cross-licensing that firmsface to protect their intellectual property. I present a model of bargaining with learning inwhich firms' decisions to litigate or crosslicense depend on their investments intechnology specific assets. In particular the model predicts that where firms' sunk costsare higher, their incentive to litigate and delay a cross-license agreement is lower. Inaddition, the bargaining game shows how firms with intermediate values of assetspecificity tend to engage in inefficient "persuasive litigation". Using a novel dataset onthe US semiconductor industry I obtain empirical results consistent with those suggestedby the model. Combining model intuition with some empirical figures, I evaluate possibleeffects of the currently debated patent litigation reform.

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    File URL: http://sticerd.lse.ac.uk/dps/ei/ei45.pdf
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    Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Economics of Industry Papers with number 45.

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    Date of creation: Jul 2007
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    Handle: RePEc:cep:stieip:45
    Contact details of provider: Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

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