Patent Litigation with Endogenous Disputes

Abstract

A model of patent dispute resolution, which alsoconsiders early stage patent and development investments by both the patentowner and the possible defendant, is presented. The model is comprised of three stages involving an investment firm and aninfringing firm. The three stages of the model are described: 1)stage oneconsists of the investment firmchoosing an investment in patent"refinement"; 2) stage two addresses the investment choices of bothfirms; and 3) stage three describes the four possible outcomes of thesituation. Using the Nash equilibrium to analyze the stages of the model, the solutionsregarding settlement, lawsuit, acquiescence and deterrence are discussed.Profitability of each firm is examined. The implications of the model areanalyzed, including the probability of litigation and the disparity of R&Dspending among industries. The model provides a means of measuring the impact of the patent law changesupon the certainty of patent rights, as well as on profit, developmentinvestment, and patenting behaviors. (AKP)

Keywords: Patent infringements, Patent law, Patent litigation, Patents, Intellectual property, Licenses, Litigation