The Settlement of Patent Litigation

Michael J. Meurer

RAND Journal of Economics, 1989, vol. 20, issue 1, 77-91

Abstract: In this article I develop a model to analyze patent licensing that is induced as part of a settlement agreement to avoid litigation of the issue of patent validity. The patentee possesses private information about patent validity and makes a take-it-or-leave-it settlement offer to a single potential rival. An essentially unique sequential equilibrium exists if out-of-equilibrium beliefs are restricted appropriately. The model analyzes the effect of the probability of settlement and litigation.

Date: 1989
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