Financing and the Protection of Innovators

Gerard Llobet and Javier Suarez

Working Papers from CEMFI

Abstract: The protection that innovators obtain through intellectual property rights crucially depends on their incentives and ability to litigate infringers. Taking patents as a notable example, we study how the financing of legal costs can alter the incentives to litigate in defense of a patent and, thus, the prospects of infringement and the effective protection of the innovator. We compare the resort to a financier once the infringement has occurred (ex-post financing) with patent litigation insurance (PLI) as well as other ex-ante arrangements based on leverage. We show that the ex-ante arrangements can be designed (for instance, in the case of PLI, by including an appropriate deductible) so as to implement the innovator’s second-best outcome: a situation in which patent predation is deterred without inducing excessive litigation.

Date: 2005
New Economics Papers: this item is included in nep-cfn, nep-fin and nep-ino
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Working Paper: Financing and the Protection of Innovators (2005)
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