How Strong Are Weak Patents?
Joseph Farrell and Carl Shapiro
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| Article Citation |
Farrell, Joseph, and Carl Shapiro. 2008. "How Strong Are Weak Patents?" American Economic Review, 98(4): 1347–69.
DOI:10.1257/aer.98.4.1347
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| Abstract |
We study the welfare economics of probabilistic patents that are licensed without
a full determination of validity. We examine the social value of instead
determining patent validity before licensing to downstream technology users, in
terms of deadweight loss (ex post) and innovation incentives (ex ante). We relate
the value of such pre-licensing review to the patent's strength, i.e., the probability
it would hold up in court, and to the per-unit royalty at which it would be
licensed. We then apply these results using a game-theoretic model of licensing
to downstream oligopolists, in which we show that determining patent validity
prior to licensing is socially beneficial. (JEL D82, K11, L24, O34 )
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| Article Full-Text Access |
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| Additional Materials |
Link to Additional Materials
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| Authors |
Farrell, Joseph (U CA, Berkeley)
Shapiro, Carl (U CA, Berkeley)
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| JEL Classifications |
D82: Asymmetric and Private Information
K11: Property Law
L24: Contracting Out; Joint Ventures; Technology Licensing
O34: Intellectual Property Rights
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