How Strong Are Weak Patents?
American Economic Review
vol. 98,
no. 4, September 2008
(pp. 1347-69)
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 )Citation
Farrell, Joseph, and Carl Shapiro. 2008. "How Strong Are Weak Patents?" American Economic Review, 98 (4): 1347-69. DOI: 10.1257/aer.98.4.1347Additional Materials
JEL Classification
- D82 Asymmetric and Private Information
- K11 Property Law
- L24 Contracting Out; Joint Ventures; Technology Licensing
- O34 Intellectual Property Rights