TY - JOUR
T1 - Patent privateering, litigation, and R&D incentives
AU - Lemus, Jorge
AU - Temnyalov, Emil
N1 - Funding Information:
∗University of Illinois at Urbana-Champaign; [email protected]. ∗∗University of Technology Sydney; [email protected]. We thank two anonymous referees and the Editor, Kathryn Spier, for their excellent comments and suggestions. We are grateful to Michael Whinston and William Rogerson for their guidance and support. We also thank Kevin Bryan, Gonzalo Cisternas, Jeffrey Ely, Erik Hovenkamp, Benjamin Jones, Elliot Lipnowski, Aviv Nevo, Robert Porter, and discussants and attendees at the Law and Economics Theory Conference (2015), ATE Symposium (2015), IIOC (2015), Searle Conference on Antitrust Economics and Competition Policy (2015), TOI 8 (2015), the Munich Conference on Innovation and Competition (MCIC 2014), EconCon (Princeton University, 2014), and seminar audiences at MIT, Northwestern, Notre Dame, UIUC, UNSW, and UTS. This article was previously entitled “Outsourcing patent enforcement: the effect of ‘patent privateers’ on litigation and R&D investments.” Temnyalov acknowledges financial support from the UTS Business Research Grant 2017.
PY - 2017/12/1
Y1 - 2017/12/1
N2 - We model “patent privateering”—whereby producing firms sell patents to Patent Assertion Entities (PAEs), which then license them under the threat of litigation—in a bargaining game. PAEs can negotiate higher licensing fees than producing firms because they cannot be countersued for infringement. Privateering produces two countervailing effects: it increases the offensive value of patents, whereas it decreases their defensive value and lowers the aggregate surplus of producing firms. Embedding the bargaining game into a Research and Development (R&D) contest for multiple complementary technologies, we find that privateering may increase R&D investments, even as it induces more litigation threats and reduces industry profits.
AB - We model “patent privateering”—whereby producing firms sell patents to Patent Assertion Entities (PAEs), which then license them under the threat of litigation—in a bargaining game. PAEs can negotiate higher licensing fees than producing firms because they cannot be countersued for infringement. Privateering produces two countervailing effects: it increases the offensive value of patents, whereas it decreases their defensive value and lowers the aggregate surplus of producing firms. Embedding the bargaining game into a Research and Development (R&D) contest for multiple complementary technologies, we find that privateering may increase R&D investments, even as it induces more litigation threats and reduces industry profits.
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U2 - 10.2139/ssrn.2308136
DO - 10.2139/ssrn.2308136
M3 - Article
SN - 0741-6261
VL - 48
SP - 1004
EP - 1026
JO - RAND Journal of Economics
JF - RAND Journal of Economics
IS - 4
ER -