Choosing Intellectual Protection: Imitation, Patent Strength and Licensing

Patents are probabilistic rights. We set up a multi-stage model in which choosing between patent and trade secrecy is affected by three parameters : the patent strength defined as the probability that the right is upheld by the court, the cost of imitating a patented innovation relative to the cost of imitating a secret innovation, and the innovation size defined as the magnitude of the cost reduction. The choice of the protection regime is the result of two effects: the damage effect evaluated under the unjust enrichment doctrine and the effect of market competition that occurs under the shadow of infringement. We find that large innovations are likely to be kept secret whereas small innovations are always patented. Furthermore, medium innovations are patented only when patent strength is sufficiently high. Finally, we investigate a class of patent licensing agreements used to settle patent disputes between patent holders and their competitors.probabilistic right, patent strength, innovation size, imitation cost; trade secrecy

Licensing weak patents

In this paper, we revisit the issue of licensing ‘weak' patents under the shadow of litigation. Departing from the seminal paper by Farrell and Shapiro [2008], we consider innovations of any size and not only ‘small' innovations, and we allow the number of licensees to be less than the number of firms in the downstream industry. It is shown that the optimal two-part tariff license from the patent holder's perspective may either deter or trigger litigation, and conditions underwhich each case arises are provided. We also reexamine the claim that the licensing revenues from ‘weak' patents overcompensate the patent holder relative to what a natural benchmarkwould command. Finally we suggest two policy levers that may alleviate the harm raised by the licensing of ‘weak' patents.Licensing Schemes ; Probabilistic Rights ; Patent Litigation

Relative and individual regulation: An investigation of investment incentives under a cost-plus approach

We analyze the effects of a modified Yardstick competition on firms’ cost-reduction efforts. Departing from the existing literature, we use a relative cost-plus approach: firms are regulated on the basis of other firms’ performances, but they are granted a mark-up and not a lump-sum transfer in order to be compensated for their investments. We show that the cost-reduction effort of a regulated firm is decreasing in the mark-up under relative regulation while it is increasing in the mark-up under individual regulation. Hence, the trade-off between encouraging cost reduction and minimizing prices that the regulator faces under individual cost-plus regulation does not exist under relative cost-plus regulation. We extend our model by including technical spillovers and we investigate their effects on firms’ cost reduction efforts and on the efficiency of the whole industry. Finally, we allow for quality-enhancing investments and study the interplay between them and cost reduction investments under relative cost-plus regulation.Yardstick Competition, Cost Reduction, Cost-Plus Regulation

Choosing Intellectual Protection: Imitation, Patent Strength and Licensing

This paper investigates the choice of an intellectual protection regime for a process innovation. We set up a multi-stage model in which choosing between patent and trade secrecy is affected by three parameters : the patent strength defined as the probability that the right is upheld by the court, the cost of imitating a patented innovation relative to the cost of imitating a secret innovation, and the innovation size defined as the extent of the cost reduction. The choice of the protection regime is the result of two effects: the damage effect evaluated under the unjust enrichment doctrine and the effect of market competition that occurs under the shadow of infringement. We find that large innovations are likely to be kept secret whereas small innovations are always patented. Furthermore, medium innovations are patented only when patent strength is sufficiently high. Finally, we investigate a class of licensing agreements used to settle patent disputes between patent holders and their competitors.patent, trade secrecy, imitation, licensing

Leniency programs for multimarket firms: The effect of Amnesty Plus on cartel formation

We examine the effect of the Amnesty Plus policy on the incentives of firms to engage in cartel activities. Amnesty Plus is aimed at attracting amnesty applications by encouraging firms, convicted in one market, to report their collusive agreements in other markets. It has been vigorously advertised that Amnesty Plus weakens cartel stability. We show to the contrary that Amnesty Plus may not have this desirable effect, and, if improperly designed, may even stabilize a cartel. We suggest a simple discount-setting rule to avoid this anticompetitive effect.Amnesty Plus, Leniency program, multimarket contact, antitrust policy

Leniency Programs for Multimarket Firms: The Effect of Amnesty Plus on Cartel Formation

We examine the effect of the Amnesty Plus policy on firms' incentives to engage in cartel activities. Amnesty Plus is a proactive antitrust enforcement strategy aimed at attracting amnesty applications by encouraging firms already convicted in one market to report collusive agreements in other markets. It has been heavily advertised that Amnesty Plus weakens cartel stability. We show to the contrary that Amnesty Plus does not always have this desirable effect. Only under specific conditions, Amnesty Plus deters a cartel which would have been sustainable under an antitrust policy without Amnesty Plus. Otherwise, Amnesty Plus is either neutral or even stabilizes a cartel. We also show that firms can exploit their multimarket contact to reduce the effectiveness of the Amnesty Plus policy.Amnesty Plus; Leniency Program; Multimarket Contact; Antitrust Policy

Per-Unit Royalty vs Fixed Fee: The Case of Weak Patents

This paper explores a licensor's choice between charging a per-unit royalty or a …fixed fee when her innovation is covered by a weak patent, i.e. a patent that is likely to be invali- dated by a court if challenged. Using a general model where the nature of competition is not speci…ed, we show that the patent holder prefers to use a per-unit royalty scheme if the strategic e¤ect of an increase in a potential licensee's unit cost on the aggregate equi- librium pro…t is positive. To show the mildness of the latter condition, we establish that it holds in a Cournot (resp. Bertrand) oligopoly with homegenous (resp. heterogenous) products under very general assumptions on the demands faced by …rms. As a byproduct of our analysis, we contribute to the oligopoly literature by o¤ering some new insights of independent interest regarding the e¤ects of cost variations on Cournot and Bertrand equilibria.Keywords: Licensing Schemes, Weak Patents, Patent Litigation.

What to Buy When Forum Shopping? Analyzing Court Selection in Patent Litigation

This paper examines court selection by plaintiffs in patent litigation. We build a forum shopping model that provides a set of predictions regarding plaintiffs' court preferences, and the way these preferences depend on the market proximity between the plaintiff and the defendant. Then, using a rich dataset of patent litigation at German regional courts between 2003 and 2008, we estimate the determinants of court selection with alternative-specific conditional logit models. In line with our theoretical predictions, our empirical results show that plaintiffs prefer courts that have shorter proceedings, especially when they compete against the defendants they face. Further, we find negative effects of the plaintiff's, as well as the defendant's, distance to court on the plaintiff's court selection. Our empirical analysis also allows us to infer whether plaintiffs perceive a given court as more or less pro-patentee than another one

Horizontal mergers and innovation

This paper discusses the effects of horizontal mergers on innovation. We rely on the existing academic literature and our own research work to present the various positive and negative effects of mergers on innovation. Our analysis shows that, even in the absence of technological spillovers and R&D complementarities, the overall impact of a merger on innovation may be positive. We derive a number of policy implications regarding the way innovation effects should be handled by competition authorities in merger control and highlight the differences with the analysis of price effects

Collusion between two-sided platforms

We study the price and welfare effects of collusion between two-sided platforms and show that they depend on whether collusion occurs on both sides or a single side of the market, and whether users single-home or multi-home. Our most striking result is that one-sided collusion leads to lower (resp. higher) prices on the collusive (resp. competitive) side if the cross-group externalities exerted on the collusive side are positive and sufficiently strong. One-sided collusion may, therefore, benefit the users on the collusive side and harm the users on the competitive side. Our findings have implications regarding cartel detection and damages actions