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Financing And The Protection Of Innovators

  • Gerard Llobet


  • Javier Suarez


    (CEMFI, Centro de Estudios Monetarios y Financieros)

The protection that innovators obtain through intellectual property rights crucially depends on their incentives and ability to litigate infringers. Taking patents as a notable example, we study how the financing of legal costs can alter the incentives to litigate in defense of a petent and, thus, the prospects of infrigement and the effective protection of the innovator. We compare the resort to a financier once the infrigement has occurred (ex-post financing) with patent litigation insurance (PLI) as well as other ex-ante arrangements based on leverage. We show that the ex-ante arrangements can be designed (for instance, in the case of PLI, by including an appropiate deductible) so as to implement the innovator's second-best outcome: a situation in which patent predaction is deterred without inducing excessive litigation.

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Paper provided by CEMFI in its series Working Papers with number wp2005_0502.

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Date of creation: Feb 2005
Date of revision:
Handle: RePEc:cmf:wpaper:wp2005_0502
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  8. Vojislav Maksimovic, 1988. "Capital Structure in Repeated Oligopolies," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 389-407, Autumn.
  9. Lanjouw, Jean O & Schankerman, Mark, 2004. "Protecting Intellectual Property Rights: Are Small Firms Handicapped?," Journal of Law and Economics, University of Chicago Press, vol. 47(1), pages 45-74, April.
  10. Bolton, Patrick & Scharfstein, David S, 1990. "A Theory of Predation Based on Agency Problems in Financial Contracting," American Economic Review, American Economic Association, vol. 80(1), pages 93-106, March.
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