Per-Unit Royalty vs Fixed Fee: The Case of Weak Patents

Rabah Amir (), David Encaoua () and Yassine Lefouili ()
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Yassine Lefouili: GREMAQ - Groupe de recherche en économie mathématique et quantitative - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper explores a licensor's choice between charging a per-unit royalty or a fixed fee when her innovation is covered by a weak patent, i.e. a patent that is likely to be invali- dated by a court if challenged. Using a general model where the nature of competition is not speci ed, we show that the patent holder prefers to use a per-unit royalty scheme if the strategic e¤ect of an increase in a potential licensee's unit cost on the aggregate equi- librium pro t is positive. To show the mildness of the latter condition, we establish that it holds in a Cournot (resp. Bertrand) oligopoly with homegenous (resp. heterogenous) products under very general assumptions on the demands faced by rms. As a byproduct of our analysis, we contribute to the oligopoly literature by o¤ering some new insights of independent interest regarding the e¤ects of cost variations on Cournot and Bertrand equilibria.

Keywords: Keywords: Licensing Schemes; Weak Patents; Patent Litigation.; JEL Classi cation: D45; L10; O32; O34. (search for similar items in EconPapers)
Date: 2011-02
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00595493v1
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: Per-Unit Royalty vs Fixed Fee: The Case of Weak Patents (2011)
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