Patent Privateering, Litigation, and R&D Incentives

74 Pages Posted: 11 Aug 2013 Last revised: 2 Nov 2018

See all articles by Jorge Lemus

Jorge Lemus

University Of Illinois Urbana Champaign

Emil Temnyalov

University of Technology Sydney, Economics Department

Date Written: March 1, 2017

Abstract

We model “patent privateering”—whereby producing firms sell patents to patent assertion entities (PAEs) which then license them under the threat of litigation—in a bargaining game. PAEs can negotiate higher licensing fees than producing firms, because they cannot be counter-sued for infringement. Privateering produces two countervailing effects: it increases the offensive value of patents, whereas it decreases their defensive value and lowers the aggregate surplus of producing firms. Embedding the bargaining game into an R&D contest for multiple complementary technologies, we find that privateering may increase R&D investments, even as it induces more litigation threats and reduces industry profits.

Keywords: Patent privateering, patent assertion entities, litigation, patent licensing, R&D, innovation, counter-suing, transaction costs

JEL Classification: D2, K2, K4, L4, L13, O3

Suggested Citation

Lemus, Jorge and Temnyalov, Emil, Patent Privateering, Litigation, and R&D Incentives (March 1, 2017). Available at SSRN: https://ssrn.com/abstract=2308136 or http://dx.doi.org/10.2139/ssrn.2308136

Jorge Lemus (Contact Author)

University Of Illinois Urbana Champaign ( email )

1407 Gregory Drive, DKH 214
Urbana, IL 61801
United States

HOME PAGE: http://sites.google.com/site/jorgelemuswebsite/

Emil Temnyalov

University of Technology Sydney, Economics Department ( email )

Australia

HOME PAGE: http://sites.google.com/site/temnyalov

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