No-Challenge Clauses in Patent Licensing - Blessing or Curse?

Benno Buehler, Matthias Hunold and Frank Schlütter
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Frank Schlütter: Université catholique de Louvain, LIDAM/CORE, Belgium

No 2021032, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We analyze the effects of no-challenge clauses that prevent licensees from challenging the validity of patents. Contrary to popular arguments, we show that banning these clauses does not necessarily improve the frequency of successful patent challenges. Depending on the patent strength, patent holders may profitably offer license contracts that incentivize licensees to not challenge the patent. Even worse, such a strategy can lead to higher running royalties and lower consumer surplus compared to contracts with no-challenge clauses. We demonstrate that measures that aim at improving the prospects of patent challenges, such as prohibiting termination-upon-challenge clauses, can cause additional detrimental effects.

Keywords: No-challenge clause; probabilistic patents; license contracts (search for similar items in EconPapers)
JEL-codes: K11 K41 L24 L42 (search for similar items in EconPapers)
Pages: 65
Date: 2021-12-03
New Economics Papers: this item is included in nep-com, nep-cta, nep-ino, nep-ipr and nep-mic
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