Probabilistic Patents

Lemley, Mark A.; Shapiro, Carl

doi:10.2139/ssrn.567883

Cited by 174 publications

(223 citation statements)

References 48 publications

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“…Farrell and Shapiro actually show that focusing on litigation-deterring contracts is much less restrictive than one might think: they show that the patent hoder …nds it optimal to deter litigation (even in the absence of litigation costs) in (i) a symmetric Cournot oligopoly with linear inverse demand and costs as long as the number of licensees is three or more, and (ii) a symmetric Bertrand oligopoly with linear costs and a linear demand system (or, more generally, linear pass-through) as long as the number of licensees is two or more. This theoretical …nding is supported by empirical evidence: the vast majority of patent disputes are settled using licensing agreements before a court decides whether the patent is valid or not (Allison and Lemley, 1998 andLemley andShapiro, 2005). Also, Zuniga and…”

Section: Licenses Deterring Litigationmentioning

confidence: 83%

“…2 It is now largely recognized that a patent is not a perfectly enforceable right, as are other forms of property. Patents correspond much more to uncertain or probabilistic rights because they only give a right to try to exclude by asserting the patent in court (Ayres and Klemperer, 1999;Shapiro, 2003;Lemley and Shapiro, 2005). Moreover, this uncertainty is strengthened by the fact that many applications are granted patent protection by the patent o¢ce (PO) even though they probably do not meet one or several of the statutory requirements: belonging to the patentable subject matters, utility, novelty and non-obviousness (or inventiveness).…”

Section: Introductionmentioning

confidence: 99%

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Optimal licensing of uncertain patents in the shadow of litigation

Amir¹,

Encaoua²,

Lefouili³

2014

Games and Economic Behavior

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This paper investigates the choice of a licensing mechanism by the holder of a patent whose validity is uncertain. We provide su¢cient conditions of a general nature under which the licensor prefers to use a per-unit royalty contract. In particular we show that this is the case for the holders of weak patents if the strategic e¤ect of an increase in a potential licensee's unit cost on the equilibrium industry pro…t is positive. The latter condition is shown to hold in a Cournot (resp. Bertrand) oligopoly with homogeneous (resp. di¤erentiated) products under general assumptions on the demands faced by …rms. As a byproduct of our analysis, we contribute to the literature on the cost paradox in oligopoly by o¤ering some new insights of independent interest regarding the e¤ects of cost variations on Cournot and Bertrand equilibria.

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Section: Licenses Deterring Litigationmentioning

confidence: 83%

Section: Introductionmentioning

confidence: 99%

Optimal licensing of uncertain patents in the shadow of litigation

Amir¹,

Encaoua²,

Lefouili³

2014

Games and Economic Behavior

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“…The economic intuition underlying this result is that each …rm ignores its impact on its rivals'payo¤s, and, consequently, there is too much duplication of e¤ort in the noncooperative equilibrium. 18 Suppose that n = 2 and output market competition is Bertrand fashion, which implies 2 = 0. Moreover, assume that r = 0:2; 1 = 1; and c ( ) = 2 : By (6), 1 = 0:31: Thus, in equilibrium, …rm 1 patents if > 1 .…”

Section: Endogenous Innovation Arrival Ratementioning

confidence: 99%

“…Second, patent protection is probabilistic. Many patent applications are not approved, 1 and as Choi (1998) and Lemley and Shapiro (2005) emphasize, even issued patents can be ruled invalid through litigation. 2 Given the requirement for full disclosure of innovation information during the patenting process, the information that is revealed may be utilized to the bene…t of rival …rms under conditions of imperfect patent protection.…”

Section: Introductionmentioning

confidence: 99%

Patenting in the shadow of independent discoveries by rivals

Zhang

2012

International Journal of Industrial Organization

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Abstract. This paper studies the decision of whether to apply for a patent in a dynamic model in which …rms innovate stochastically and independently. In the model, a …rm can choose between patenting and maintaining secrecy to protect a successful innovation. I consider a legal environment characterized by imperfect patent protection and no prior user rights. Thus, patenting grants probabilistic protection, and secrecy is e¤ectively maintained until rivals innovate. I show that (1) …rms that innovate early are more inclined to choose secrecy, whereas …rms that innovate late have a stronger tendency to patent; (2) the incentives to patent increase with the innovation arrival rate; and (3) an increase in the number of …rms may cause patenting to occur earlier or later, depending on the strength of patent protection. The socially optimal level of patent protection, which balances the trade-o¤ between the provision of patenting incentives and the avoidance of deadweight loss caused by a monopoly, is lower with a higher innovation arrival rate or a larger number of …rms.

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“…Both valuations are highly uncertain because no specific probability is known whether the medicine that might emerge will be successful. Also, the validity and enforceability of patents is often difficult to determine ex ante (Lemley & Shapiro, 2005). However, considering that people are not completely rational, valuations based on expectations might not be the only influences that matter.…”

Section: Introductionmentioning

confidence: 99%

The Endowment Effect in Groups with and without Strategic Incentives

2009

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The realization of market transactions often depends on decisions in groups in which members are anonymous and cannot communicate, but have interrelated outcomes. In a comprehensive study, we investigated the interaction of group effects, strategic effects and endowment effects in different group situations. We show that groups display an endowment effects for uncertain goods which is reduced by about 50% compared to the endowment effect in individuals in corresponding situations. In group situations with additional strategic incentives to overprice the endowment effect completely diminished. The strategic effects and group effects on pricing in group situations cannot be found for participants' personal valuations of the good, whereas the endowment effect for personal valuations prevailed in both group conditions. This indicates that the endowment effect might be more fundamental than group effects and strategic effects. A paramorphic model for pricing in strategic group situations is suggested and practical implications are discussed.

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Probabilistic Patents

Cited by 174 publications

References 48 publications

Optimal licensing of uncertain patents in the shadow of litigation

Optimal licensing of uncertain patents in the shadow of litigation

Patenting in the shadow of independent discoveries by rivals

The Endowment Effect in Groups with and without Strategic Incentives

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