The Value of a Second Bite at the Apple: The Effect of Patent Dispute Settlements on Entry and Consumer Welfare

FTC Bureau of Economics Working Paper No. 281

28 Pages Posted: 17 Jan 2006  

Joel L. Schrag

Bureau of Economics - Federal Trade Commission

Date Written: January 2006

Abstract

I analyze the effect on consumer welfare of settlements of patent infringement lawsuits that consist of a royalty-free license for delayed entry by a potentially infringing horizontal competitor of the incumbent patent-holder. Settlements that split the remaining patent life in a way that reflects the expected outcome of the trial do not in general improve consumer welfare compared to the litigation alternative. This result arises because such settlements can undermine potential entrants' incentives to challenge the incumbent's monopoly. If settlements of patent infringement lawsuits cause a reduction in the investment in development of competing products, consumers may prefer that the parties to such disputes litigate rather than settle.

Keywords: patents, settlement, antitrust, intellectual property

JEL Classification: K21, L4, O34

Suggested Citation

Schrag, Joel L., The Value of a Second Bite at the Apple: The Effect of Patent Dispute Settlements on Entry and Consumer Welfare (January 2006). FTC Bureau of Economics Working Paper No. 281 . Available at SSRN: https://ssrn.com/abstract=874969 or http://dx.doi.org/10.2139/ssrn.874969

Joel L. Schrag (Contact Author)

Bureau of Economics - Federal Trade Commission ( email )

600 Pennsylvania Avenue, NW
Washington, DC 20580
United States
202-326-3588 (Phone)
202-326-3443 (Fax)

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