Does Banning Side Payments in Patent Settlements Suffice to Fully Protect Consumers?

16 Pages Posted: 6 Dec 2011 Last revised: 2 Jan 2015

See all articles by Elisabetta Ottoz

Elisabetta Ottoz

University of Turin - Department of Economics

Franco Cugno

University of Turin

Date Written: July 30, 2012

Abstract

By using a simple model of patent settlement, in this paper we show that even if side payments (negative fixed fees) are banned, a licensing agreement to settle a patent dispute may harm consumers in comparison with the expected outcome of the lawsuit. This may occur when the challenger’s expected return from litigation is low, that is when probabilistic damages are high relative to the challenger’s duopoly profits. Our model suggests that there may be large benefits to consumers from post-grant reexamination of commercially valuable patents - as stressed by Farrell and Shapiro (2008) in another context.

Keywords: Patent settlements, litigation costs, licensing, consumers’ welfare

JEL Classification: K2, O34

Suggested Citation

Ottoz, Elisabetta and Cugno, Franco, Does Banning Side Payments in Patent Settlements Suffice to Fully Protect Consumers? (July 30, 2012). Available at SSRN: https://ssrn.com/abstract=1969032 or http://dx.doi.org/10.2139/ssrn.1969032

Elisabetta Ottoz (Contact Author)

University of Turin - Department of Economics ( email )

Via Po, 53
Torino, 10124
Italy
+390116702739 (Phone)
+390116702762 (Fax)

Franco Cugno

University of Turin ( email )

Via Po 53
Torino, Turin - Piedmont 10100
Italy

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