Optimal licensing of uncertain patents in the shadow of litigation

Rabah Amir (), David Encaoua () and Yassine Lefouili

Games and Economic Behavior, 2014, vol. 88, issue C, 320-338

Abstract: This paper investigates the choice of a licensing mechanism by the holder of a patent whose validity is uncertain. We provide sufficient 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 effect of an increase in a potential licensee's unit cost on the equilibrium industry profit is positive. The latter condition is shown to hold in a Cournot (resp. Bertrand) oligopoly with homogeneous (resp. differentiated) products under general assumptions on the demands faced by firms. As a byproduct of our analysis, we contribute to the literature on the cost paradox in oligopoly by offering some new insights of independent interest regarding the effects of cost variations on Cournot and Bertrand equilibria.

Keywords: Licensing mechanisms; Uncertain patents; Patent litigation; Cost comparative statics (search for similar items in EconPapers)
JEL-codes: D45 L10 O32 O34 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Related works:
Working Paper: Optimal licensing of uncertain patents in the shadow of litigation (2014)
Working Paper: Optimal licensing of uncertain patents in the shadow of litigation (2014)
Working Paper: Optimal Licensing of Uncertain Patents in the Shadow of Litigation (2013)
Working Paper: Optimal Licensing of Uncertain Patents in the Shadow of Litigation (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:88:y:2014:i:c:p:320-338

DOI: 10.1016/j.geb.2014.09.009

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