Litigation and Settlement in Patent Infringement Cases

Abstract

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.

Why Entrepreneurs Choose Risky R&D Projects – But Still Not Risky Enough

“…14 This mirrors the fact that one major benefit for incumbents from innovating is that a successful innovation often serves as an entry deterring activity (see Crampes and Langinier (2002) and Gilbert and Newbery (1982)). In particular, being successful in innovating implies that the incumbent gains technical experience which makes it more likely to succeed in copying the entrepreneur's innovation, or reliably threatens to do so, and thereby reduces the likelihood of entry by the entrepreneur.…”

“…A supplementary material contains additional estimation results together with a robustness analysis. 10 We summarize the results from the supplementary material in Section 6.4.6.…”

Contributory Infringement Rule and Patents

“…We assume that once the infringer loses the lawsuit, all of the members are liable, and …rm H is entitled to receive compensation from all of them. 7 Further, we initially assume that it is costless for the patentholder to sue the members. In section 7, we relax this assumption and show that our results still hold.…”

How Does Patent Litigation Influence Dynamic Risk for Market Competitors?

“…Consequently, patent litigation cases launched by internationally renowned manufacturers against Taiwanese businesses are becoming more common. Therefore, Taiwanese enterprises must develop key technology research and development (R&D), actively improve patent quality, and establish patent teams in order to compete in international markets and confidently face international patent litigation (Griliches 1981;Narin et al 1987;Trajtenberg 1990;Crampes, Langinier 2002;Hall et al 2005;Arora et al 2008;Coe et al 2009).…”