Licensing probabilistic Patents and Liability Rules: The Duopoly case

Vargas Barrenechea, Martin (2009): Licensing probabilistic Patents and Liability Rules: The Duopoly case.

Abstract

In this paper a dynamic game is used to compare licensing of a cost reduction innovations under lost profits (LP) and unjust enrichment (UE), both damage rules used by courts in the calculation of damages when a patent has been infringed. The innovation, whose property right belongs to a firm (patent holder) has a positive probability to be declared invalid in a court. The market is composed by two homogeneous firms that compete in quantities (Cournot). Licensing by using royalty rates is preferred compared with fixed fees, it is observable little licensing (just big innovations). LP is better (almost all cases) than UE for the industry and society. However in the major of the cases consumers are better off under UE and in the major of cases LP benefits more to the patent holder.

• Item Type: MPRA Paper
• Language: English
• Keywords: innovation, law, damage rules, patent, licensing games
• Subjects: D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior ; Transaction Costs ; Property Rights; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O34 - Intellectual Property and Intellectual Capital; P - Economic Systems > P4 - Other Economic Systems > P48 - Political Economy ; Legal Institutions ; Property Rights ; Natural Resources ; Energy ; Environment ; Regional Studies; K - Law and Economics > K1 - Basic Areas of Law > K11 - Property Law

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