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No-Challenge Clauses in Patent Licensing - Blessing or Curse?

Author

Listed:
  • Buehler, Benno
  • Hunold, Matthias
  • Schlütter, Frank

    (Université catholique de Louvain, LIDAM/CORE, Belgium)

Abstract

We analyze the effects of no-challenge clauses that prevent licensees from challenging the validity of patents. Contrary to popular arguments, we show that banning these clauses does not necessarily improve the frequency of successful patent challenges. Depending on the patent strength, patent holders may profitably offer license contracts that incentivize licensees to not challenge the patent. Even worse, such a strategy can lead to higher running royalties and lower consumer surplus compared to contracts with no-challenge clauses. We demonstrate that measures that aim at improving the prospects of patent challenges, such as prohibiting termination-upon-challenge clauses, can cause additional detrimental effects.

Suggested Citation

  • Buehler, Benno & Hunold, Matthias & Schlütter, Frank, 2021. "No-Challenge Clauses in Patent Licensing - Blessing or Curse?," LIDAM Discussion Papers CORE 2021032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2021032
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    No-challenge clause ; probabilistic patents ; license contracts;
    All these keywords.

    JEL classification:

    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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