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A Simple Theory of Defensive Patenting

Chiou, Jing-Yuan A Simple Theory of Defensive Patenting. Working Paper (Unpublished)

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This paper examines innovating firms’ incentives to engage in defensive patenting. It first establishes a “truce equilibrium” in patent enforcement: when litigation is costly, the equal strength of two symmetric parties’ patent portfolios deters any patent disputes along the equilibrium path. This equilibrium behavior generates two benefits of defensive patenting, namely, to prevent licensing outlays and to protect downstream investments. In addition, firms can use patents to coordinate non-contractible investment decisions. Depending on the joint interests, they can either reach a license in order to guarantee high investment incentives, or agree not to grant a license so that investments are deterred by the litigation threat. On the other hand, the strategic patenting concern may generate a bandwagon of patent accumulation, where firms rush to the patent office to get a patent, but the subsequent investment performance is the same as when there is no patent at all. The paper also argues that defensive patenting may weaken the effectiveness of patents as an appropriation scheme. This offers an explanation that the “pro-patent” policy shift in the United States since the 1980s may actually have undermined the incentive power of the patent system.

Item Type: Working Paper (Working Paper)
Additional Information: JEL codes: K19, K41, O34.
Uncontrolled Keywords: Hold-up, Intellectual Property Rights, Patent, Trade Secrecy.
Subjects: H Social Sciences > HB Economic Theory
K Law > K Law (General)
T Technology > T Technology (General) > T201 Patents. Trademarks
Research Area: Economics and Institutional Change
Depositing User: Users 15 not found.
Date Deposited: 25 Feb 2011 08:56
Last Modified: 11 Jul 2011 14:00
URI: http://eprints.imtlucca.it/id/eprint/95

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