IDEAS home Printed from https://ideas.repec.org/p/hal/cesptp/hal-00318208.html
   My bibliography  Save this paper

Licensing Uncertain Patents: Per-Unit Royalty vs Up-Front Fee

Author

Listed:
  • David Encaoua

    () (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Yassine Lefouili

    () (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

In this paper we examine the implications of uncertainty over patent validity on patentholders' licensing strategies. Two licensing mechanisms are examined: per-unit royalty and up-front fee.We provide conditions under which uncertain patents are licensed in order to avoid patent litigation. It is shown that while it is possible for the patentholder to reap som e "extra profit" by selling an uncertain patent under the pure per-unit royalty regime, the opportunity to do so does not exist under a pure up-front fee regime. We also establish that the relatively high bargaining power the licensor has even when its patent is weak can be reduced if the patentholder cannot refuse to license an unsucessful challenger or if collective challenges are allowed for. Furthermore we show that the patentee may prefer to license through the per-unit royalty mechanism rather than the fixed fee mechanism, especially if its patent is weak. This finding contradicts the traditional theoretical result that fixed fee licensing dominates royalty rate licensing from the patentholder's perspective.

Suggested Citation

  • David Encaoua & Yassine Lefouili, 2008. "Licensing Uncertain Patents: Per-Unit Royalty vs Up-Front Fee," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00318208, HAL.
  • Handle: RePEc:hal:cesptp:hal-00318208
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00318208
    as

    Download full text from publisher

    File URL: https://hal.archives-ouvertes.fr/hal-00318208/document
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rockett, Katharine, 2010. "Property Rights and Invention," Handbook of the Economics of Innovation, Elsevier.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:cesptp:hal-00318208. 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: (CCSD). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.