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Licensing probabilistic Patents and Liability Rules: The Duopoly case

Author

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  • Vargas Barrenechea, Martin

Abstract

In this paper a game is used to compare the licensing of a cost reduction innovations under lost profits (LP) and unjust enrichment (UE), both damage rules that are used by courts in the calculation of damages when a patent has been infringed. The market is composed by two homogeneous firms that compete in quantities (Cournot), both firmas produces a homogeneous good. One of the firms (patent holder) develops a cost reduction innovation (drastic or non-drastic) and got a patent for this innovation. Under the shadow of probabilistic property rights, It is founded that licensing by using royalty rate is preferred compared with fixed fees, also it is observable little licensing (just big innovations). By comparing LP against UE, it is concluded that for drastic innovation the patentee and licensee are better off under LP. However social welfare is greater under UE. In the case of a non drastic innovation the results do not show a rule better than the other one.

Suggested Citation

  • Vargas Barrenechea, Martin, 2009. "Licensing probabilistic Patents and Liability Rules: The Duopoly case," MPRA Paper 16872, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:16872
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    More about this item

    Keywords

    innovation; law; damage rules; patent; licensing games;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law

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