Patents, Litigation Strategy and Antitrust in Innovative Industries

37 Pages Posted: 27 Jun 2019

See all articles by Steffen Juranek

Steffen Juranek

Norwegian School of Economics (NHH) - Department of Business and Management Science

Thomas Quan

University of Georgia

John L. Turner

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics

Date Written: June 25, 2019

Abstract

In a patent infringement suit, the alleged infringer wins with a ruling of either patent invalidity or non-infringement. It is ambiguous which of these outcomes is preferred by the alleged infringer. Invalidity may increase current-period competition, but simultaneously removes constraints to successful future innovation. The choice of whether to vigorously pursue patent invalidation may also affect incentives to innovate. We adapt the "innovative industries'' model of Segal and Whinston (2007) to study patent litigation strategy and rates of innovation. We show that a legal regime where infringement is considered first (and validity second) maximizes incentives to innovate. But if the future blocking effect of patent validity is strong, the alleged infringer may prefer to litigate validity first to maximize the likelihood of invalidity. This litigation strategy effect may reduce levels of innovation. Antitrust policy should seek to attenuate this effect, and may do so by reducing the advantage to incumbency.

Keywords: antitrust, invalidity, litigation, non-infringement, patents

JEL Classification: K2, L4, O3

Suggested Citation

Juranek, Steffen and Quan, Thomas and Turner, John L., Patents, Litigation Strategy and Antitrust in Innovative Industries (June 25, 2019). Available at SSRN: https://ssrn.com/abstract=3409987 or http://dx.doi.org/10.2139/ssrn.3409987

Steffen Juranek

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Thomas Quan

University of Georgia ( email )

Athens, GA 30602-6254
United States

John L. Turner (Contact Author)

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics ( email )

Athens, GA 30602-6254
United States

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