Choosing Intellectual Protection: Imitation, Patent Strength and Licensing

36 Pages Posted: 23 May 2006

See all articles by David Encaoua

David Encaoua

Université Paris I Panthéon Sorbonne

Yassine Lefouili

Université Paris I Panthéon-Sorbonne - Equipe Universitaire de Recherche en Economie Quantitative (EUREQUA)

Date Written: May 2006

Abstract

This paper investigates the choice of an intellectual protection regime for a process innovation. We set up a multi-stage model in which choosing between patent and trade secrecy is affected by three parameters: the patent strength defined as the probability that the right is upheld by the court, the cost of imitating a patented innovation relative to the cost of imitating a secret innovation, and the innovation size defined as the extent of the cost reduction. The choice of the protection regime is the result of two effects: the damage effect evaluated under the unjust enrichment doctrine and the effect of market competition that occurs under the shadow of infringement. We find that large innovations are likely to be kept secret whereas small innovations are always patented. Furthermore, medium innovations are patented only when patent strength is sufficiently high. Finally, we investigate a class of licensing agreements used to settle patent disputes between patent holders and their competitors.

Keywords: patent, trade secrecy, imitation, licensing

JEL Classification: D45, L10, O32, O34

Suggested Citation

Encaoua, David and Lefouili, Yassine, Choosing Intellectual Protection: Imitation, Patent Strength and Licensing (May 2006). CESifo Working Paper Series No. 1715, Available at SSRN: https://ssrn.com/abstract=903872

David Encaoua (Contact Author)

Université Paris I Panthéon Sorbonne ( email )

MSE, 106-112 Bd de l'Hôpital 75013 Paris
Paris, 75013
France

Yassine Lefouili

Université Paris I Panthéon-Sorbonne - Equipe Universitaire de Recherche en Economie Quantitative (EUREQUA) ( email )

106-112 Boulevard de l'Hopital
Paris Cedex 13, 75647
France

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