Optimal patent licensing strategy in patent litigation

Abstract

Technology innovators often face an essential, yet troublesome, question: What should they do when they might be unable to market their research results due to financial constraints, while there is still substantial uncertainty around the market demand? And the presence of patent litigation is estimated to have a crucial impact on the licensing scheme, and at the same time changes an innovator' financing decision. We find that in the shadow of patent litigation, optimal ex-post licensing contracts are more likely to use ad valorem royalty when the potential market size is relatively small, whereas relatively large market size favors per-unit royalty. We also explore how ex-ante licensing contract can both dissuade potential licensees from challenging the patent's validity and alleviate the financing problem when firms have financial constraint.

Bargaining in Patent Licensing Negotiations under Stochastic Environments: An Experimental Study

“…The main reason is that the market size is one of the determinants to affect the licensing strategy for firms to market their research results [23]. In a similar design developed by [22], we associate the market uncertainty with different variances of the market size but with the same expected mean sales in order to focus on the impact of variability in these unknown future sales on the bargaining outcome of a licensing game.…”