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Choosing intellectual protection : imitation, patent strength and licensing

This paper investigates the choice of an intellectual protection regime for a process innovation. We set up a multi-stage model in which choosing between patent and trade secrecy is affected by three parameters : the patent strength defined as the probability that the right is upheld by the court, the cost of imitating a patented innovation relative to the cost of imitating a secret innovation, and the innovation size defined as the extent of the cost reduction. The choice of the protection regime is the result of two effects : the damage effect evaluated under the unjust enrichment doctrine and the effect of market competition that occurs under the shadow of infringement. We find that large innovations are likely to be kept secret whereas small innovations are always patented. Furthermore, medium innovations are patented only when patent strength is sufficiently high. Finally, we investigate a class of licensing agreements used to settle patent disputes between patent holders and their competitors.

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File URL: ftp://mse.univ-paris1.fr/pub/mse/cahiers2006/V06039.pdf
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Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number v06039.

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Length: 33 pages
Date of creation: Dec 2005
Date of revision: Mar 2006
Handle: RePEc:mse:wpsorb:v06039
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  1. Encaoua, David & Guellec, Dominique & Martinez, Catalina, 2006. "Patent systems for encouraging innovation: Lessons from economic analysis," Research Policy, Elsevier, vol. 35(9), pages 1423-1440, November.
  2. Horstmann, Ignatius & MacDonald, Glenn M & Slivinski, Alan, 1985. "Patents as Information Transfer Mechanisms: To Patent or (Maybe) Not to Patent," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 837-58, October.
  3. Scherer, F. M., 1983. "The propensity to patent," International Journal of Industrial Organization, Elsevier, vol. 1(1), pages 107-128, March.
  4. F. M. Scherer, 2005. "Patents," Books, Edward Elgar, number 3903.
  5. Mark A. Lemley & Carl Shapiro, 2005. "Probabilistic Patents," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 75-98, Spring.
  6. James Anton & Hillary Greene & Dennis Yao, 2006. "Policy Implications of Weak Patent Rights," NBER Chapters, in: Innovation Policy and the Economy, Volume 6, pages 1-26 National Bureau of Economic Research, Inc.
  7. Crampes, Claude, 1986. "Les inconvénients d’un dépôt de brevet pour une entreprise innovatrice," L'Actualité Economique, Société Canadienne de Science Economique, vol. 62(4), pages 521-534, décembre.
  8. Suzanne Scotchmer & Jerry Green, 1990. "Novelty and Disclosure in Patent Law," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 131-146, Spring.
  9. James J. Anton & Dennis A. Yao, 2007. "Finding "Lost" Profits: An Equilibrium Analysis of Patent Infringement Damages," Journal of Law, Economics and Organization, Oxford University Press, vol. 23(1), pages 186-207, April.
  10. James J. Anton & Dennis A. Yao, 2004. "Little Patents and Big Secrets: Managing Intellectual Property," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 1-22, Spring.
  11. Nancy T. Gallini, 1992. "Patent Policy and Costly Imitation," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 52-63, Spring.
  12. David Encaoua & Abraham Hollander, 2002. "Competition Policy and Innovation," Oxford Review of Economic Policy, Oxford University Press, vol. 18(1), pages 63-79, Spring.
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