A patent is not a perfect protection against imitation. It only grants the patentholder the right to sue intruders once they have been identified. This implies that the patentholder must supervise the market and react in case of infringement. His reaction may be to go to court, to settle an agreement or to accept the entry. We investigate how intensive the monitoring effort should be and how it will influence the entry decision. In a simultaneous game we show that even if the penalty paid by the infringer in case of a finding of liability is high, the patentholder may prefer a settlement over a trial. Furthermore, there exist cases in which the likelihood of entry increases with the penalty. In sequential games, we show that regardless of whether the patentholder or the potential infringer plays first, entry occurs comparatively less often than in the simultaneous game.
This paper analyses whether the institutions of patents is a desirable attribute of the economic system, and what are the features of an optimal patent system are. It also discusses how patents, as currently implemented, affect the workings of the economic system and how the existence of patents affects the allocation of resources to, and the distribution of income arising from, inventive activities. It is indicated that the patent system has emerged as the central institution for asserting intellectual property rights in many crucial fields of science and technology. From an economic point of view, it is suggested that patents offer a second-best solution to the market failure arising from the public-good nature knowledge. As such, the patent system contributes to solving a problem but comes with shortcomings of its own, mostly because it creates market power positions that can adversely affect the economic performance of the system.
The last several decades have seen increases in patenting activity worldwide, as well as growing issues related to patent quality. In response to these quality issues a recent patent literature has emerged, that investigates the behavior and incentives of patent examiners, applicants, and third parties. In this paper, we provide an overview of patent procedures, patent systems and a survey of the new economic literature on patent systems. Both theoretical and empirical papers are considered. Policy implications coming from this literature are presented.
Recent surveys report that firms claim they do not rely heavily on patents in order to appropriate a return on their innovation. Yet, firms do patent, as indicated by the large number of patents that are granted. This paper offers a possible resolution to this puzzle.It takes a simplified version of a duopoly innovation race, and studies the patenting decision of an innovator who has private information about the improvability of her innovation.In this setting, it is shown that a firm may use the patenting decision to mislead her rival.Under symmetric information, research can be stimulated but not disclosed. However, under asymmetric information, disclosure is more likely even though the incentive to do research may be weakened.
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