|By:||Doh-Shin Jeon (Toulouse School of Economics and CEPR)
Yassine Lefouili (Toulouse School of Economics)
|This paper investigates the patent licensing networks formed by competing firms. Assuming that licensing agreements can involve the payment of fixed fees only and that firms compete à la Cournot, we show that the complete network is always bilaterally efficient and that the monopoly network is bilaterally efficient if the patents are complementary enough. In the case of independent patents, we fully characterize the bilaterally efficient networks and find that when the cost reduction resulting from getting access to a competitor’s technology is large enough, the complete network is the only bilaterally efficient one. We also show that the bilaterally efficient networks can be sustained as subgame-perfect Nash equilibria with symmetric payoffs. This implies that the Pareto-dominance criterion selects the network that maximizes industry profits when more than one bilaterally efficient network exists.|
|Keywords:||Licensing; Networks; Antitrust and Intellectual Property|
|JEL:||L12 L13 L41|
Watanabe, N., & Muto, S. (2008). Stable profit sharing in a patent licensing game: general bargaining outcomes. International journal of game theory, 37(4), 505-523. [working paper 版]
JEL Classification Numbers: C71; D45; D43
Keywords: licensing, coalition structure, bargaining set, core
==noted by yi-nung==
有簡要的 patent licensing problem 的文獻回顧：
We examine the optimal licensing strategy of a research lab selling to firms who are product market competitors. We consider an independent lab as well as a research joint venture. We show that (1) demands are interdependent and hence the standard price mechanism is not the profit-maximizing licensing strategy; (2) the seller’s incentives to develop the innovation may be excessive; (3) the seller’s incentives to disseminate the innovation typically are too low; (4) larger ventures are less likely to develop the innovation, and more likely to restrict its dissemination in those cases where development occurs; and (5) a downstream firm that is not a member of the research venture is worse off as a result of the innovation.
|By:||Doh-Shin Jeon (Toulouse School of Economics)
Yassine Lefouili (Toulouse School of Economics)
We study bilateral cross-licensing agreements among N(> 2) firms that engage in competition after the licensing phase. It is shown that the most collusive cross-licensing royalty, i.e. the one that allows the industry to achieve the monopoly profit, is sustainable as the outcome of bilaterally efficient agreements. When the terms of the agreements are not observable to third parties, the monopoly royalty is the unique symmetric bilaterally efficient royalty. However, when the terms of the agreements are public, the most competitive royalty (i.e. zero) can also be bilaterally efficient. Policy implications regarding the antitrust treatment of cross-licensing agreements are derived from these results.
|Keywords:||Cross-Licensing, Collusion, Antitrust and Intellectual Property|
|JEL:||L44 O33 O34|
In this paper we compare and contrast the most profitable modes of licensing a cost-reducing invention by an inventor who is an industry incumbent with one who is not. We find that an industry incumbent favors licensing by means of a royalty per unit of output to which the new technology is applied while an outsider prefers to auction off a fixed number of licences outright. Our analysis also suggests that an outside inventor finds it most profitable to target greater cost-reducing inventions to monopolistic industries while an incumbent inventor favors competitive industries.
Shin Kishimoto, Shigeo Muto (2012) “Fee Versus Royalty Policy in Licensing Through Bargaining: An Application of the Nash Bargaining Solution." Bulletin of Economic Research， Volume 64, Issue 2, pages 293–304. DOI: 10.1111/j.1467-8586.2010.00356.x. 18.104.22.168 [PDF]
==notes by yinung==
這是理論文章，證明 Royalty licensing 比 fixed fee licensing 來得好 for firms and social veiw.
裡頭有 licensing patents 的理論文獻
理論證明 fixed 比 royalty 好 in Kamien and Tauman (1986)
…Despite the fact that a royalty is often observed, theoretical analyses including Kamien and Tauman (1986) showed that a
ﬁxed fee was superior to a royalty for both the patent holder and consumers.
但 Kamien and Tauman (2002) and Wang (1998) 證明 royalty 比 fixed 好
…Kamien and Tauman (2002) extended the model of Wang (1998) to a Cournot oligopoly market, and showed that if the patent holder competed in the product market with a suﬃciently large number of ﬁrms, then a royalty is superior to a ﬁxed fee for
談判方式： “take-it-or-leave-it“ (像 ultimatum game)
…These studies basically assumed a “take-it-or-leave-it” licensing manner; that is, the patent holder ﬁrst announces a level of a ﬁxed fee (or a royalty), and then ﬁrms decide whether or not to buy the patent. Analyses were done in terms of noncooperative game theory.
也有用合作賽局為理論架構來研究 for licensing the patent
…Tauman and Watanabe (2007) applied the Shapley value and showed that the patent holder’s proﬁt in the Shapley value approximated his/her equilibrium proﬁt in the noncooperative model of Kamien and Tauman (1986) as the number of ﬁrms became large. Watanabe and Muto (2008) characterized the upper bound and the lower bound of the patent holder’s proﬁts in the bargaining set.
In this paper, we consider a Cournot duopoly market in which the patent-holding firm negotiates with its rival firm about payments for licensing a cost-reducing innovation. Applying the Nash bargaining solution, we compare two licensing policies, a fixed fee and a royalty. Our results are as follows. Royalty licensing is better than fixed fee licensing for both firms if the innovation is not drastic. So, royalty licensing is always carried out. Moreover, though there exists a case in which consumers prefer fixed fee licensing, royalty licensing is always superior to fixed fee licensing from the social point of view.
Kamien, M.I., Tauman, Y. (1986). Fees Versus Royalties and the Private Value of a Patent. Quarterly Journal of Economics, 101, 471-491.
Kamien, M.I., Tauman, Y. (2002). Patent Licensing: The Inside Story. The Manchester School, 70, 7-15.
 Rubinstein, A. (1982). Perfect Equilibrium in a Bargaining Model. Econometrica, 50, 97-109.
 Sen, D. (2005). Fee Versus Royalty Reconsidered. Games and Economic Behavior, 53, 141-147.
 Sen, D., Tauman, Y. (2007). General Licencing Schemes for a Cost-reducing Innovation. Games and Economic Behavior, 59, 163-186.
 Sempere-Monerris, J.Jos´ e., Vannetelbosch, V.J. (2001). The Relevance of Bargaining for the Licensing of a Cost-reducing Innovation. Bulletin of Economic Research, 53, 101-115.
 Tauman, Y .,Watanabe, N. (2007). The Shapley value of a patent licensing game: the asymptotic equivalence to non-cooperative results. Economic Theory, 30, 135-149.
 Wang, X.H. (1998). Fee Versus Royalty Licensing in a Cournot Duopoly Model. Economics Letters, 60, 55-62.
 Watanabe, N.,Muto, S. (2007). Stable Proﬁt Sharing in Patent Licensing: General Bargaining Outcomes. Int. Journal of Game Theory, forthcoming.
Einer Elhauge (2008) “Do Patent Holdup and Royalty Stacking Lead to Systematically Excessive Royalties?" Journal of Competition Law & Economics, 4 (3): 535-570. doi: 10.1093/joclec/nhn027; link to CLER. download PDF.
==notes by yinung==
see also Shapiro (2010).
這篇亦有提到 patent 類似分餅 ultimatum game 遊戲
Some recent literature has concluded that patent remedies result in systematically excessive royalties because of holdup and stacking problems. This article shows that this literature is mistaken. The royalty rates predicted by the holdup models are often (plausibly most of the time) below the true optimal rate. Further, those predicted royalty rates are overstated because of incorrect assumptions about constant demand, one-shot bargaining, and informational symmetry. Although this literature concludes that overcompensation problems are exacerbated by doctrines measuring damages using past negotiated royalties, in fact such doctrines exacerbate undercompensation problems. Undercompensation problems are further increased to the extent that juries cannot measure damages with perfect accuracy, a problem that persists even if damages are just as likely to be overestimated as underestimated. Nor do the royalty rates predicted by the holdup model apply if there is competition in the downstream product market or upstream market for inventions. Royalty stacking does not lead to royalties that exceed the optimal rate, contrary to this literature, but in fact tends to produce royalties that are at or below the optimal rate.
A simple model is developed to study royalty negotiations between a patent holder and a downstream firm whose product is more valuable if it includes a feature covered by the patent. The downstream firm must make specific investments to develop, design, and sell its product before patent validity and infringement will be determined. The hold-up component of the negotiated royalties is greatest for weak patents covering a minor feature of a product with a high margin between price and marginal cost. For weak patents, the hold-up component of negotiated royalties remains unchanged even if negotiations take place before the downstream firm designs its product. The analysis has implications for the use of injunctions in patent infringement cases.
Binmore, Ken, Avner Shaked, and John Sutton. 1989. “An Outside Option Experiment,” 104(4) Quarterly Journal of Economics 4753–70. link to PDF.
Elhauge, Einer. 2008. “Do Patent Holdup and Royalty Stacking Lead to Systematically Excessive Royalties?” 4(3) Journal of Competition Law and Economics 3535–70.
Federal Trade Commission. 2003. To Promote Innovation: The Proper Balance Between Competition and Patent Law and Policy. October, Available at: http://www.ftc.gov/os/2003/10/innovationrpt.pdf.
Gallini, Nancy. 2002. “The Economics of Patents: Lessons From Recent U.S. Patent Reform,” 16(2) The Journal of Economic Perspectives 2131–54.
Hall, Bronwyn, and Rose Marie Ziedonis. 2001. “The Patent Paradox Revisited: An Empirical Study of Patenting in the U.S. Semiconductor Industry, 1979–1995,” 32 The Rand Journal of Economics 101–28.
Heller, Michael, and Rebecca Eisenberg. 1998. “Can Patents Deter Innovation? The Anti-Commons in Biomedical Research,” 280 Science 698–701.
Lemley, Mark, and Carl Shapiro. 2007a. “Patent Hold-Up and Royalty Stacking,” 85(7) Texas Law Review 71991–2049. Available at: http://faculty.haas.berkeley.edu/shapiro/stacking.pdf. (see also Patent Hold-Up and Royalty Stacking: Reply)
Lemley, Mark, and Carl Shapiro. 2007b. “Patent Hold-Up and Royalty Stacking: Reply,” 85(7) Texas Law Review 72163–73.
Shapiro, Carl. 2001. “Navigating the Patent Thicket: Cross-Licenses, Patent Pools, and Standard-Setting” in Jaffe Adam Lerner Joshua and Stern Scott, eds., Innovation Policy and the Economy National Bureau of Economics. Available at: http://faculty.haas.berkeley.edu/shapiro/thicket.pdf.
Sidak, J. Gregory. 2008. “Holdup, Royalty Stacking, and the Presumption of Injunctive Relief for Patent Infringement: A Reply to Lemley and Shapiro,” 92(3) Minnesota Law Review 3714–48.
Lemley, Mark A., and Carl Shapiro. 2005. “Probabilistic Patents." Journal of Economic Perspectives, 19(2): 75-98. DOI: 10.1257/0895330054048650; URL: http://www.aeaweb.org/articles.php?doi=10.1257/0895330054048650
==Notes by yinung==
多年前就知道 Carl Shapiro 轉往研究 IP 相關之經濟議題, 不過卻到今日才略領其大意…
為何稱做 “Probabilistic" patents
Virtually all property rights contain some element of uncertainty…. There are two fundamental dimensions of uncertainty:
1) uncertainty about the commercial significance of the invention being patented, and
2) uncertainty about the validity and scope of the legal right being granted.
(p.81)…Many patent applications, and indeed patents themselves, are like lottery tickets. Inventors who are uncertain of the commercial significance…Two of the most common practices used by patentees to increase their chances of winning the patent lottery are continuations and a proliferation of closely related patents… increasing the chance that
their patents will cover technology that becomes widely adopted by market participants.
Patent 訴訟不見得不好, 因為有外部性
… because litigating patent disputes to completion tends to generate positive externalities, by clarifying the limits of patent protection if the patent is upheld or encouraging wider use of the innovation if the patent is invalidated.
為何大部份的 patent 的價值都很低, 但申請數量卻眾多?
1. 申請者不確定哪些會有價值 (Scherer, 2001; Denton and Heald, 2004)
2. 申請者不知道其價值 (Rivette and Kline, 2000)
3. 數量多有利於財務操作和增加市場評價 (Lemley, 2000; Hall, Jaffe and Trajtenberg, 2005)
4. 當做 signaling mechanisms (Long, 2002)
5. 防禦性功能 “defensive” use of patents to deter others from suing (Hall and Ziedonis, 2001; Lemley, 2001)
6. 綁在 patent portfolio 中 (Parchomovsky and Wagner, 2004)
Why do inventors file for many patents that turn out to have little or no value? Surely part of the reason is that patent applicants do not know which patents will be valuable and which will be worthless (Scherer, 2001; Denton and Heald, 2004). But other explanations have been offered: a failure to understand the value of patents (Rivette and Kline, 2000); the use of patents to obtain financing and boost market valuation (Lemley, 2000; Hall, Jaffe and Trajtenberg, 2005); the use of patents as signaling mechanisms (Long, 2002); and the “defensive” use of patents to deter others from suing (Hall and Ziedonis, 2001; Lemley, 2001). Even individually weak patents might have value as part of a large patent portfolio, because the portfolio can be licensed as a block or can serve to deter lawsuits (Parchomovsky and Wagner, 2004).
專利入場券 patent ticket
… “patent thicket," in which hundreds of patents can apply to a single product (Shapiro, 2001; FTC, 2003). …One way to cut through the patent thicket is for incumbents with extensive patent portfolios to enter into broad cross-licenses (that is, exchanges of roughly symmetric patent positions) to “clear” the thicket.
Without such cross-licenses, the result is inefficient “royalty stacking,” in which a manufacturer without its own patent portfolio must pay royalties to a number of separate companies.
申請者比較會有個別資訊 …applicants appear to have considerable private information at an early stage about the likely value of at least some of their patents. … Allison, Lemley, Moore and Trunkey (2004) find… most significant predictors of ultimate value observable to researchers are the industry, the number of prior art references, the number of claims in the patent and the time invested in prosecution of the patent.
使專利失效 invalidating a patent 會有正外部性 (即會 under-supplied), 因此被控之廠商通常會尋求和解, 而不是興訟
… challenges to patents are undersupplied (Gilbert, 2004; Farrell and Merges, 2004)
The key insight is that invalidating a patent generates significant positive externalities, and activities that generate positive externalities are undersupplied. There are very strong reasons to believe that challenges to patents are undersupplied (Gilbert, 2004; Farrell and Merges, 2004).
Economists often assume that a patent gives its owner a well-defined legal right to exclude others from practicing the invention described in the patent. In practice, however, the rights afforded to patent holders are highly uncertain. Under patent law, a patent is no guarantee of exclusion but more precisely a legal right to try to exclude. Since only 0.1% of all patents are litigated to trial, and since nearly half of fully litigated patents are declared invalid, this distinction is critical to understanding the economic impact of patents. The growing recognition among economists and legal scholars that patents are probabilistic property rights has significant implications for our understanding of patents in four important areas: (1) reform of the system by which patents are granted; (2) the legal treatment of patents in litigation; (3) the incentives of patent holders and alleged infringers to settle their disputes through licensing or cross-licensing agreements rather than litigate them to completion; and (4) the antitrust limits on agreements between rivals that settle actual or threatened patent litigation.
Buccafusco, Christopher J. and Sprigman, Christopher Jon ,Valuing Intellectual Property: An Experiment: An Experiment (March 11, 2010). Cornell Law Review, Vol. 91, 2010; Chicago-Kent Intellectual Property, Science & Technology Research Paper No. 10-029; Virginia Law and Economics Research Paper No. 2010-04. Available at SSRN: http://ssrn.com/abstract=1568962
Noted by Yi-Nung
實驗 A. Contest “Eyes Closed” Method
1. 找10個人當 Author 各寫一首詩, 假裝參加 haiku-writing competition 競賽, 第1名可得獎金 $50.
2. 找 10 個人當 bidder, 每一個 author 寫的詩, 指定給一個 bidder,
3(a). Bidder 去評估 (被指的那一首) 詩是否能得獎, 然後「願意付多少錢」(WTP)得到這個機會
4. Author 則選擇「願意接受多少錢」(WTA) 賣掉這個得獎的機會 (但仍然保留著作權)
5. 另外找人當 Owner, 每人隨機指定 1 首 Author 寫的詩, 並令其回答「願意接受多少錢」(WTA) 賣掉這個得獎的機會
實驗 B. The Contest: “Eyes Open”
與上述 5 點相同, 除了所有的人都看過所有的 1o 首詩 (perfect information?)
實驗 A 和 B 的結果: WTP 和 WTA 間有很大的統計顯著差異 (gap) (顯示支持 Endownment Effect);
而角色不同的 Author 和 Owner 之間的 WTA 並無顯著差異。
實驗 C. The Lottery: “Blind”
與上述 5 點相同, 但是不是以評審方式決定哪一首詩得獎, 而告訴全部人, 此次是用抽獎的方式決定誰得獎
(照理說, 這個 treatment 應該可以去除 Endowment Effects)
實驗 C 的結果: WTA/WTP 的 gap 更大! (即Endowment Effects 仍然存在) 但是 Authro、Owner、Buyer 三者的 WTA/WTP 都小於實驗 A/B。
In this article we report on the results of an experiment we performed to determine whether transactions in intellectual property (IP) are subject to the valuation anomalies commonly referred to as “endowment effects”. Traditional conceptions of the value of IP rely on assumptions about human rationality derived from classical economics. The law assumes that when people make decisions about buying, selling, and licensing IP they do so with fixed, context-independent preferences. Over the past several decades, this rational actor model of classical economics has come under attack by behavioral data showing that people do not always make strictly rational decisions. Perhaps the most important research in this field is that related to the “endowment effect” – the discovery that, contrary to economic predictions, people value the same object more when they own it than when they do not.
To date, the endowment effect has been observed for a variety of goods including mugs, lottery tickets, and hunting permits. Our experiment establishes a substantial valuation asymmetry between authors of poems and potential purchasers of them. As we explain in detail in the article, we constructed a market for the poems that was modeled on a market for licensing IP. The observed differences in valuation indicate that IP licensing markets may be substantially less efficient that previously believed. Our results suggest that (1) the preferences of IP creators, owners, and purchasers are unstable and dependent on the initial distribution of property rights in creative works, and (2) large gaps arise between purchasers’ willingness to pay and sellers’ willingness to accept even though the poems are non-rival property and the contemplated alienation of the property is therefore only partial.
Our findings suggest that private transactions in creative goods may face significant transaction costs arising from cognitive biases that drive the price that creators and owners of IP are likely to demand for transfers considerably higher than what buyers will, on average, be willing to pay. This does not mean, of course, that transactions in IP will not take place – we see such transactions happening out in the world every day. Our research suggests, however, that IP transactions may occur at a level that is significantly suboptimal, and that the baleful effect of cognitive and affective biases is likely to be more serious for transactions in works of relatively low commercial value, or for which no well-established custom or pattern helps to inform valuation. These results have considerable implications for the structuring of IP rights, IP formalities, IP licensing, and fair use.
Christopher Buccafusco and Christopher Jon Sprigman (2011) THE LICENSING OF INTELLECTUAL PROPERTY: The Creativity Effect, 78, U. Chi. L. Rev. 31.