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The Inverse Cournot Effect in Royalty Negotiations with Complementary Patents

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  • Llobet, Gerard
  • Padilla, Atilano Jorge

Abstract

It has been commonly argued that the decision of a large number of inventors to license complementary patents necessary for the development of a product leads to excessively large royalties. This well-known Cournot-complements or royalty-stacking effect would hurt efficiency and downstream competition. In this paper we show that when we consider patent litigation and introduce heterogeneity in the portfolio of different firms these results change substantially due to what we denote the Inverse Cournot effect. We show that the lower the total royalty that a downstream producer pays, the lower the royalty that patent holders restricted by the threat of litigation of downstream producers will charge. This effect generates a moderation force in the royalty that unconstrained large patent holders will charge that may overturn some of the standard predictions in the literature. Interestingly, though, this effect can be less relevant when all patent portfolios are weak making royalty stacking more important.

Suggested Citation

  • Llobet, Gerard & Padilla, Atilano Jorge, 2016. "The Inverse Cournot Effect in Royalty Negotiations with Complementary Patents," CEPR Discussion Papers 11624, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11624
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    References listed on IDEAS

    as
    1. Jay Pil Choi & Heiko Gerlach, 2015. "A Model of Patent Trolls," CESifo Working Paper Series 5536, CESifo Group Munich.
    2. Aleksandra Boutin, 2016. "Screening for Good Patent Pools through Price Caps on Individual Licenses," American Economic Journal: Microeconomics, American Economic Association, vol. 8(3), pages 64-94, August.
    3. M. Bourreau & Y. Ménière & T. Pohlmann, 2015. "The market for standard essential patents," Working Papers hal-01261024, HAL.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Intellectual Property; Patent Licensing; Patent Pools; R&D Investment; Standard Setting Organizations;

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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