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The Division of Profit in Sequential Innovation for Probabilistic Patents

Author

Listed:
  • Chou Teyu

    (Department of Public Finance, National ChengChi University)

  • Haller Hans

    (Department of Economics, Virginia Polytechnic Institute and State University)

Abstract

Sequential innovation with actual patent infringement and uncertainty in litigation is analyzed. Comparative statics shows that within a wide range of model parameters, a basic researcher holding a patent is able to extract all of the profit facilitated by the basic innovation. The patent holder achieves this by offering a licensing contract which the subsequent innovator accepts in the shadow of paying infringement damages. It is further demonstrated that, under rather general circumstances, broader patent breadth may diminish the patent holder's incentive to innovate: that is to extract all of the profit from the subsequent innovator commercializing the innovation.

Suggested Citation

  • Chou Teyu & Haller Hans, 2007. "The Division of Profit in Sequential Innovation for Probabilistic Patents," Review of Law & Economics, De Gruyter, vol. 3(2), pages 581-609, December.
    • Handle: RePEc:bpj:rlecon:v:3:y:2007:i:2:n:14
    DOI: 10.2202/1555-5879.1164
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    Cited by:

    1. Bonwoo Koo & Brian D. Wright, 2010. "Dynamic Effects of Patent Policy on Sequential Innovation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(2), pages 489-512, June.
    2. Mitchell, Matthew & Zhang, Yuzhe, 2012. "Shared Rights and Technological Progress," MPRA Paper 36537, University Library of Munich, Germany.

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