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Patent Assertion and the Rate of Innovation

Posted: 11 Aug 2013 Last revised: 26 Jul 2016

Jorge Lemus

University Of Illinois Urbana Champaign

Emil Temnyalov

Northwestern University - Department of Economics

Date Written: October 24, 2014

Abstract

We analyze the effect of Patent Assertion Entities (PAEs) on the innovation incentives of producing firms. Before producing, these firms engage in sequential patent races to discover and patent the components needed for the final product. We characterize the equilibrium of a model that incorporates patent trade, entry, licensing, litigation, and injunctions. In our model, only producing firms can obtain injunctions, which reduces the incentives of producing firms to sell patents to PAEs, because the latter cannot exclude rival firms from the market. We show that PAEs can increase the marginal value of patenting a discovery, but they can also act as an entry deterrent. As an extension, we study patent trade among producing firms and a third party that can decide to enter the market and produce.

Keywords: Innovation, R&D, Patent Policy, Patent Assertion Entities, Non-practicing Entities

Suggested Citation

Lemus, Jorge and Temnyalov, Emil, Patent Assertion and the Rate of Innovation (October 24, 2014). 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

Northwestern University - Department of Economics ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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