Patents, Litigation Strategy and Antitrust in Innovative Industries
37 Pages Posted: 27 Jun 2019
Date Written: June 25, 2019
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: Suggested Citation