Licensing vs. Litigation: The Effect of the Legal System on Incentives to Innovate

Licensing vs. Litigation: The Effect of the Legal System on Incentives to Innovate With uncertain scope of patent protection and imperfect enforcement, the effective strength of patent protection is determined by the legal system. We analyze how the legal system affects the incentives of firms to innovate, taking into account possibilities of strategic licensing and litigation to deter imitation. The legal system that guarantees the patentee's monopoly power maximizes the R&D intensities. However, the legal system that induces licensing provides incentives to exert R&D effort while preserving ex post efficiency. We also compare R&D, patent licensing, and litigation behavior under American and English rules of legal cost allocation. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economics & Management Strategy Wiley

Licensing vs. Litigation: The Effect of the Legal System on Incentives to Innovate

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Publisher
Wiley
Copyright
Copyright © 1999 Wiley Subscription Services, Inc., A Wiley Company
ISSN
1058-6407
eISSN
1530-9134
DOI
10.1111/j.1430-9134.1999.00133.x
Publisher site
See Article on Publisher Site

Abstract

With uncertain scope of patent protection and imperfect enforcement, the effective strength of patent protection is determined by the legal system. We analyze how the legal system affects the incentives of firms to innovate, taking into account possibilities of strategic licensing and litigation to deter imitation. The legal system that guarantees the patentee's monopoly power maximizes the R&D intensities. However, the legal system that induces licensing provides incentives to exert R&D effort while preserving ex post efficiency. We also compare R&D, patent licensing, and litigation behavior under American and English rules of legal cost allocation.

Journal

Journal of Economics & Management StrategyWiley

Published: Mar 1, 1999

References

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