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The Option Value of Patent Litigation: Theory and Evidence

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Abstract

In this paper I present a real options model of patent litigation when patents are not perfectly enforceable. I consider both finite horizon and infinite horizon models. The theoretical results demonstrate that patent value depends not only on the underlying technology, but also on the degree of uncertainty over the property right. Additionally, uncertain property rights create an effective patent term that is less than the statutory term. Using simulation methods and patent data, I estimate the hazard rate of patent litigation. I find that, contrary to previous results, the most valuable patents are not the primary candidates for litigation.

Suggested Citation

  • Marco, Alan, 2001. "The Option Value of Patent Litigation: Theory and Evidence," Vassar College Department of Economics Working Paper Series 52, Vassar College Department of Economics, revised Dec 2003.
  • Handle: RePEc:vas:papers:52
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    1. Lanjouw, Jean O & Schankerman, Mark, 2001. "Characteristics of Patent Litigation: A Window on Competition," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 129-151, Spring.
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    Cited by:

    1. Gupeng, Zhang & Xiangdong, Chen, 2012. "The value of invention patents in China: Country origin and technology field differences," China Economic Review, Elsevier, vol. 23(2), pages 357-370.
    2. repec:ebl:ecbull:v:11:y:2007:i:1:p:1-7 is not listed on IDEAS
    3. Su, Hsin-Ning, 2017. "Collaborative and Legal Dynamics of International R&D- Evolving Patterns in East Asia," Technological Forecasting and Social Change, Elsevier, vol. 117(C), pages 217-227.
    4. Jeon, Haejun, 2015. "Patent infringement, litigation, and settlement," Economic Modelling, Elsevier, vol. 51(C), pages 99-111.
    5. Lee, Pei-Chun & Su, Hsin-Ning, 2014. "How to forecast cross-border patent infringement? — The case of U.S. international trade," Technological Forecasting and Social Change, Elsevier, vol. 86(C), pages 125-131.
    6. Raffaele Oriani & Luigi Sereno, 2011. "Advanced Valuation Methods: The Real Options Approach," Chapters,in: The Economic Valuation of Patents, chapter 6 Edward Elgar Publishing.
    7. Emmanuel Dechenaux & Brent Goldfarb & Scott Shane & Marie Thursby, 2008. "Appropriability and Commercialization: Evidence from MIT Inventions," Management Science, INFORMS, vol. 54(5), pages 893-906, May.
    8. Bessen, James, 2008. "The value of U.S. patents by owner and patent characteristics," Research Policy, Elsevier, vol. 37(5), pages 932-945, June.
    9. Chi Leung & Yue Kwok, 2011. "Real options game analysis of sleeping patents," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 34(1), pages 41-65, May.
    10. Federico Munari & Maurizio Sobrero, 2011. "Economic and Management Perspectives on the Value of Patents," Chapters,in: The Economic Valuation of Patents, chapter 3 Edward Elgar Publishing.
    11. repec:gam:jsusta:v:9:y:2017:i:4:p:541-:d:94915 is not listed on IDEAS
    12. repec:spr:scient:v:92:y:2012:i:1:d:10.1007_s11192-012-0716-7 is not listed on IDEAS
    13. repec:cuf:journl:y:2017:v:18:i:1:duan:shi:sun is not listed on IDEAS
    14. Zhang, Gupeng & Lv, Xiaofeng & Zhou, Jianghua, 2014. "Private value of patent right and patent infringement: An empirical study based on patent renewal data of China," China Economic Review, Elsevier, vol. 28(C), pages 37-54.
    15. Marco, Alan C., 2007. "The dynamics of patent citations," Economics Letters, Elsevier, vol. 94(2), pages 290-296, February.

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