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Optimal licensing of uncertain patents in the shadow of litigation

Author

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  • Rabah Amir

    () (University of Iowa [Iowa])

  • David Encaoua

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

  • Yassine Lefouili

    () (TSE - Toulouse School of Economics - Toulouse School of Economics)

Abstract

This paper investigates the choice of a licensing mechanism by the holder of a patent whose validity is uncertain. We provide sufficient conditions of a general nature under which the licensor prefers to use a per-unit royalty contract. In particular we show that this is the case for the holders of weak patents if the strategic effect of an increase in a potential licensee's unit cost on the equilibrium industry profit is positive. The latter condition is shown to hold in a Cournot (resp. Bertrand) oligopoly with homogeneous (resp. differentiated) products under general assumptions on the demands faced by firms. As a byproduct of our analysis, we contribute to the literature on the cost paradox in oligopoly by offering some new insights of independent interest regarding the effects of cost variations on Cournot and Bertrand equilibria.

Suggested Citation

  • Rabah Amir & David Encaoua & Yassine Lefouili, 2014. "Optimal licensing of uncertain patents in the shadow of litigation," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01087234, HAL.
  • Handle: RePEc:hal:cesptp:hal-01087234
    DOI: 10.1016/j.geb.2014.09.009
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01087234
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    References listed on IDEAS

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    Cited by:

    1. Apurva Dey & Arun Kumar Kaushik & Rupayan Pal, 2017. "Probabilistic patents, alternative damage rules and optimal trade policy," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2017-004, Indira Gandhi Institute of Development Research, Mumbai, India.
    2. Jeon, Doh-Shin & Lefouili, Yassine, 2015. "Cross-Licensing and Competition," IDEI Working Papers 850, Institut d'Économie Industrielle (IDEI), Toulouse.
    3. Wang, Kuang-Cheng Andy & Wang, Yi-Jie & Liang, Wen-Jung & Tsai, Ming-Che & Mai, Chao-Cheng, 2016. "Patent licensing under financial structure with limited liability," International Review of Economics & Finance, Elsevier, vol. 46(C), pages 121-135.
    4. Stefano Colombo & Luigi Filippini, 2016. "Revenue royalties," Journal of Economics, Springer, vol. 118(1), pages 47-76, May.
    5. Jacob Seifert, 2015. "Welfare effects of compulsory licensing," Journal of Regulatory Economics, Springer, vol. 48(3), pages 317-350, December.
    6. Badia, Bruno D. & Tumendemberel, Biligbaatar, 2016. "On the licensing of a technology with unknown use," Games and Economic Behavior, Elsevier, vol. 100(C), pages 220-233.
    7. Doh-Shin Jeon & Yassine Lefouili, 2013. "Cross-Licensing and Competition," Working Papers 13-11, NET Institute.
    8. Zhang, Huaige & Wang, Xuejun & Qing, Ping & Hong, Xianpei, 2016. "Optimal licensing of uncertain patents in a differentiated Stackelberg duopolistic competition market," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 215-229.

    More about this item

    Keywords

    Licensing mechanisms; Uncertain patents; Patent litigation; Cost comparative statics JEL Classi…cation: D45;

    JEL classification:

    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • 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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