Using patents to mislead rivals

Abstract

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.

Competitive Bluffing: An Examination of a Common Practice and its Relationship with Performance

“…This recently popularized term reflects the fact that many ''just-around-the-corner'' items do not currently exist, and while many may never make it to market, their preannouncement often discourages competitors' from pursuing projects to offer comparable products or services. In the petroleum and pharmaceutical industries, strategic decision makers often use decoy patents (i.e., bluff patenting) to mislead competitors into believing research is being conducted in multiple areas or otherwise lead them to second-guess what their company is actually doing (Langinier, 2005;Linchfield Insurance Group, 2005). For example, Kabi and Genentech, working together to develop a treatment for dwarfism in children, offensively patented up to five different production techniques for the same task to avoid disclosing to competitors the most effective process, and naturally, the one they were actively pursuing (McKelvey, 1996).…”

Information sharing strategies in a standards contest: The case of 2G wireless communication

“…Information sharing and knowledge disclosure are theorized to be critical tools in the competition between technologies (Shapiro & Varian, 1999;McEvily, Das & McCabe, 2000;Langinier, 2005), and there is mounting empirical evidence to support these ideas. Information about a technology's benefits, as well as technical specifications and product availability announcements, can sway adopters to select a particular technology (Rogers, 1995;Theoharakis et al, 2007).…”

“…Specifically, information sharing can assist in the legitimization of a new technology by shaping public discourse and perceptions of its potential value, encourage the development of evaluation criteria applied to competing technologies, and influence expectations about which will dominate by actively engaging the support of other stakeholders (Ferguson, 1998;Das & Van de Ven, 2000). It may also be used to preempt, mislead, or co-opt potential technological rivals, in an effort to accelerate the progress of an emerging technology, or delay substitution of an established technology (David, 1991;McEvily et al, 2000;Spencer, 2003;Langinier, 2005).…”

Product development capability and marketing strategy for new durable products

“…Similarly, Moorthy and Png (1992) show that a monopolist should launch a high quality product before launching a low quality product. The firm may, however, face difficulties in developing a high quality product first because a better performing product often requires additional R&D (Langinier 2005). Moreover, the monopolist may want to sell a higher quality product later if it does not discriminate between past and new buyers (Kornish 2001).…”

“…17 That is, a firm with high PDC utilizes a strategy of market penetration independent of whether quality is observable. This points to an important interaction between the way that consumers think about their purchase decision and the observability of quality.…”