Licensing in the Patent Thicket - Timing and Benefits

Siebert, Ralph Bernd and Graevenitz, Georg von (2010): Licensing in the Patent Thicket - Timing and Benefits.

Abstract

Licensing can be a solution for hold-up in patent thickets. In this paper we study whether licensing is an effective solution for hold-up. To do this we distinguish between ex ante and ex post licensing. A theoretical model shows that firms’ expectations of blocking in a patent thicket determine whether they license ex ante while ex post licensing arises if expected blocking was low but realized blocking turns out to be high. It can also be shown that ex ante licensing will allow firms to reduce their patenting efforts. A sample selection model of licensing is derived from the theoretical model. Applying this to data from the semiconductor industry we show that licensing does help firms to resolve blocking. However, the probability of observing licensing decreases as fragmentation of property rights increases and arises mainly between large firms with similar market shares. Licensing experience is also an important determinant of licensing. As expected ex ante licensing allows firms to reduce the level of patenting.

• Item Type: MPRA Paper
• Language: English
• Keywords: Hold-Up Problem; Licensing; Innovation; Patent Race; Patent Thicket
• Subjects: L - Industrial Organization > L0 - General; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C13 - Estimation: General; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O38 - Government Policy; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O34 - Intellectual Property and Intellectual Capital

References

ALBERT, M., D. AVERY, F. NARIN, AND P. MCALLISTER (1991): “Direct Validation of Citation Counts as Indicators of Industrially Important Patents,” Research Policy, 20, 251–259.

ANAND, B. AND T. KHANNA (2000): “The Structure of Licensing Contracts,” The Journal of Industrial Economics, XLVIII, 103–135.

BEATH, J., Y. KATSOULACOS, AND D. ULPH (1989): “Strategic R&D Policy,” The Economic Journal, 99, 74–83.

BESSEN, J. AND M. J. MEURER (2008): Patent Failure, Princeton University Press.

CLARK, D. J. AND K. A. KONRAD (2008): “Fragmented Property Rights and Incentives for R&D,” Management Science, 54, 969–981.

FEDERAL TRADE COMMISSION (2003): “To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy,” Tech. rep., FTC, http://www.ftc.gov/opa/2003/10/cpreport.htm.

FERSHTMAN, C. AND M. I. KAMIEN (1992): “Cross Licensing of Complementary Technologies,” International Journal of Industrial Organization, 10, 329–348.

GALASSO, A. (2007): “Broad Cross-License Agreements andPersuasive Patent Litigation: Theory and Evidence from the Semiconductor Industry,” Economics of Industry Papers 45, STICERD.

GRAHAM, S. AND D. HARHOFF (2006): “Can Post-Grant Reviews Improve Patent System Design? A Twin Study of US and European Patents,” Working Paper 5680, CEPR.

GRINDLEY, P. C. AND D. J. TEECE (1997): “Managing Intellectual Capital: Licensing and Cross-Licensing in Semiconductors and Electronics,” California Management Review, 39, 8–41.

HALL, B. H., A. B. JAFFE, AND M. TRAJTENBERG (2005): “Market Value and Patent Citations,” Rand Journal of Economics, 36, 16–38.

HALL, B. H. AND R. ZIEDONIS (2001): “The Patent Paradox Revisited: An Empirical Study of Patenting in the U.S. Semiconductor Industry, 1979-1995,” Rand Journal of Economics, 32, 101–128.

HARHOFF, D. AND S. WAGNER (2009): “The Duration of Patent Examination at the European Patent Office,” Management Science, 55, 1969–1984.

HELLER, M. A. AND R. S. EISENBERG (1998): “Can Patents Deter Innovation? The Anticommons in Biomedical Research,” Science, 280, 698–701.

HUYS, I., N. BERTHELS, G. MATTHIJS, AND G. V. OVERWALLE (2009): “Legal uncertainty in the area of genetic diagnostic testing,” Nature Biotechnology, 27, 903–909.

JAFFE, A. B. (1986): “Technological Opportunity and Spillovers of R&D: Evidence from Firms’ Patents, Profits and Market Value,” American Economic Review, 76, 984–1001.

JAFFE, A. B. (2000): “The U.S. Patent System in Transition: Policy Innovation and the Innovation Process,” Research Policy, 29, 531–557.

JAFFE, A. B. AND J. LERNER (2004): Innovation and Its Discontents: How Our Broken Patent System is Endangering Innovation and Progress, and What to Do About It., Princeton, N.J.: Princeton University Press.

JORGENSON, D. W. (2001): “Information Technology and the U.S. Economy,” American Economic Review, 91, 1–32.

LEE, T. AND L. L. WILDE (1980): “Market Structure and Innovation: A Reformulation,” The Quarterly Journal of Economics, 94, 429-436.

LEMLEY, M. (2001): “Rational Ignorance at the Patent Office,” Northwestern University Law Review, 95, 1–39.

MASTEN, S. E. (1993): “Transaction Costs, Mistakes, and Performance: Assessing the Importance of Governance,” Managerial and Decision Economics, 14, 119–129.

MILGROM, P. AND J. ROBERTS (1990): “Rationalizability, Learning and Equilibrium in Games with Strategic Complementarities.” Econometrica, 58, 1255–1278.

REINGANUM, J. F. (1989): “The Timing of Innovation: Research, Development and Diffusion,” in Handbook of Industrial Organization, ed. by R. Schmalensee and R. D. Willig, Amsterdam, Netherlands: Elsevier Science, vol. 1, 850–908.

ROWLEY, T., D. BEHRENS, AND D. KRACKHARDT (2000): “Redundant Governance Structures: An Analysis of Structural and Relational Embeddedness in the Steel and Semiconductor Industries,” Strategic Management Journal, 21, 369–386.

SHAPIRO, C. (2001): “Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard-Setting,” in Innovation Policy and the Economy, ed. by A. B. Jaffe, J. Lerner, and S. Stern, Cambridge, Mass.: MIT Press, vol. 1, 119–150.

SHAPIRO, C. (2003): “Technology Cross-Licensing Practices: F.T.C. vs. Intel (1999),” in The Antitrust Revolution, ed. by J. E. Kwoka and L. J. White, Oxford: Oxford University Press, 350–369.

SHAVER, J. M. (1998): “Accounting for Endogeneity When Assessing Strategy Performance: Does Entry Mode Choice Affect FDI Survival?” Management Science, 44, 571 – 585.

SOMAYA, D. (2003): “Strategic Determinants of Decisions not to Settle Patent Litigation,” Strategic Management Journal, 24, 17–38.

STUART, T. (1998): “Network Positions and Propensities to Collaborate: An Investigation of Strategic Alliance Formation in a High-technology Industry,” Administrative Science Quarterly, 43, 668–698.

VILLALONGA, B. AND R. AMIT (2006): “How do Family Ownership, Management, and Control Affect Firm Value?” Journal of Financial Economics, 80, 385–417.

VIVES, X. (1999): Oligopoly Pricing, Old Ideas and New Tools, Cambridge, Massachusetts and London, England: MIT Press.

VON GRAEVENITZ, G., S. WAGNER, AND D. HARHOFF (2008): “Incidence and Growth of Patent Thickets - The Impact of Technological Opportunities and Complexity,” CEPR Discussion Papers 6900, C.E.P.R. Discussion Papers.

VON GRAEVENITZ, G., S. WAGNER, K. HOISL, B. HALL, D. HARHOFF, P. GIURI, AND A. GAMBARDELLA (2007): The Strategic Use of Patents and its Implications for Enterprise and Competition Policies, Report for the European Commission.

VONORTAS, N. S. (2003): “Technology Licensing,” Final report, Center for International Sceince and Technology Policy, The George Washington University, Washington D.C.

ZIEDONIS, R. H. (2003): “Patent Litigation in the U.S. Semiconductor Industry,” in Patents in the Knowledge-Based Economy, ed. by W. M. Cohen, Washington, D.C.: National Academies Press, 180–215.

ZIEDONIS, R. H. (2004): “Don’t Fence Me In: Fragmented Markets for Technology and the Patent Acquisition Strategies of Firms,” Management Science, 50, 804–820.