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Different Rules of Legal-Cost Allocation and Patent Hold-Up

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We study how different rules of legal-cost allocation impact on negotiated royalties in an environment where patent hold-up is possible. The model assumes that the courts routinely grant stays of permanent injunctions to allow the infringers to redesign their products or deny injunctive reliefs outright. In these scenarios we consider the American system, where each party bear s its own costs, the British system, where the loser incurs all costs, and the system favoring the defendant, where the defendant pays its own costs if it loses and nothing otherwise. Our main conclusions are that when stayed injunctions are granted the system favoring the defendant provides the best results, while under denied injunctions the American system is preferable

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File URL: http://www.est.unito.it/do/home.pl/Download?doc=/allegati/wp2012dip/16_wp_ottozcugno.pdf
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Paper provided by University of Turin in its series Department of Economics and Statistics Cognetti de Martiis. Working Papers with number 201216.

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Length: 17 pages
Date of creation: Oct 2012
Handle: RePEc:uto:dipeco:201216
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  1. Polinsky, A Mitchell & Rubinfeld, Daniel L, 1998. "Does the English Rule Discourage Low-Probability-of-Prevailing Plaintiffs?," The Journal of Legal Studies, University of Chicago Press, vol. 27(1), pages 141-157, January.
  2. Llobet, Gerard, 2003. "Patent litigation when innovation is cumulative," International Journal of Industrial Organization, Elsevier, vol. 21(8), pages 1135-1157, October.
  3. Reiko Aoki & Jin-Li Hu, 1996. "Licensing vs. Litigation: Effect of the Legal System on Incentives to Innovate," Industrial Organization 9612002, EconWPA.
  4. Hylton, Keith N, 1993. "Litigation Cost Allocation Rules and Compliance with the Negligence Standard," The Journal of Legal Studies, University of Chicago Press, vol. 22(2), pages 457-476, June.
  5. Hughes, James W & Snyder, Edward A, 1995. "Litigation and Settlement under the English and American Rules: Theory and Evidence," Journal of Law and Economics, University of Chicago Press, vol. 38(1), pages 225-250, April.
  6. Carl Shapiro, 2010. "Injunctions, Hold-Up, and Patent Royalties-super-1," American Law and Economics Review, Oxford University Press, vol. 12(2), pages 509-557.
  7. Michael J. Meurer, 1989. "The Settlement of Patent Litigation," RAND Journal of Economics, The RAND Corporation, vol. 20(1), pages 77-91, Spring.
  8. Joseph Farrell & Carl Shapiro, 2008. "How Strong Are Weak Patents?," American Economic Review, American Economic Association, vol. 98(4), pages 1347-1369, September.
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