Optimal Licensing of Uncertain Patents in the Shadow of Litigation

Rabah Amir (rabah-amir@uiowa.edu), David Encaoua (encaouadavid@gmail.com) and Yassine Lefouili (yassine.lefouili@m4x.org)
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Yassine Lefouili: TSE-R - Toulouse School of Economics - 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: The paper investigates the choice of a licensing mechanism by the holder of a patent whose validity may be challenged. Focusing fi rst on weak patents, i.e. patents that have a high probability of being invalidated by a court if challenged, we show that the patent holder fi nds it optimal to use a per-unit royalty contract if the strategic effect of an increase in a potential licensee's unit cost on the equilibrium industry profi t is positive. The latter condition ensures the superiority of the per-unit royalty mechanism independently of whether the patent holder is an industry insider or outsider, and is shown to hold in a Cournot (resp. Bertrand) oligopoly with homogeneous (resp. differentiated) products under general assumptions on the demands faced by fi rms. We then examine the optimal licensing of patents that are uncertain but not necessarily weak. As a byproduct of our analysis, we contribute to the oligopoly literature by offering some new insights of independent interest regarding the effects of cost variations on Cournot and Bertrand equilibria.

Keywords: Cost comparative statics; Licensing mechanisms; Uncertain patents; Patent litigation; Cost comparative statics.; Mécanismes de licence; Brevets incertains; Litige en brevet; Statique comparative des coûts (search for similar items in EconPapers)
Date: 2013-05-24
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00847955v1
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Related works:
Journal Article: 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 (2014)
Working Paper: Optimal Licensing of Uncertain Patents in the Shadow of Litigation (2013)
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