nep-tid New Economics Papers
on Technology and Industrial Dynamics
Issue of 2006‒07‒02
four papers chosen by
Roberto Fontana
Universita Bocconi

  1. An Option-Based View of Imperfect Patent Protection By Philipp N. Baecker
  2. Towards Patent Pools in Biotechnology? By Patrick Gaulé
  3. Empirical studies of innovation in the knowledge driven economy By Hall, Bronwyn; Mairesse, Jacques
  4. Pseudo-Generic Products and Mergers in Pharmaceutical Markets By Martimort, D.; Poudou, J.-C.; Sand-Zantman, W.

  1. By: Philipp N. Baecker (Department of Finance and Accounting, EUROPEAN BUSINESS SCHOOL (ebs), International University Schloß Reichartshausen)
    Abstract: Given a noticeable degradation of patent quality, patenting has come to resemble the purchase of a lottery ticket. Rising cost of engaging in litigation over intellectual property (IP) assets substantially diminishes their value as an incentive to invest in research (Lanjouw and Schankerman, 2001). The author proposes an option-based view (OBV) of imperfect patent protection as a formal strategic model of so-called probabilistic patents (Lemley and Shapiro, 2005), which may serve as a starting point for further investigations into the impact of patent risk on firm values and research incentives. More specifically, the real option approach is employed to demonstrate how, due to increased litigation activity in red oceans, rising profit rates may lead to falling patent values, calling for a careful tradeoff between reliable patent protection in mature markets and seemingly attractive business opportunities in industries such as pharmaceutical biotechnology.
    Keywords: capital budgeting, intellectual property, litigation, real options
    JEL: G31 O31 C73
    Date: 2006–06–23
  2. By: Patrick Gaulé (Chaire en Economie et Management de l'Innovation, Ecole Polytechnique Fédérale de Lausanne)
    Abstract: We analyze the extent to which patent pools (agreements where patent holders agree to license their intellectual property as a package) could be used as an institution to facilitate technology transactions in biotechnology. Patent pools have been used with success in the consumer electronics and other sectors but they are untested in biotechnology despite their transaction cost reducing potential. We suggest two explanations for the fact that patent pools have not been used in this industry. The first is that the current antitrust requirements are difficult to meet in biotechnology. The second is the availability of simpler alternatives that will often be more profitable to patent holders: aggregation of rights by one party and cross-licensing.
    Keywords: patent pools, licensing, intellectual property management, biotechnology
    JEL: O32 O34 K11 K21
    Date: 2006–04
  3. By: Hall, Bronwyn (UNU-MERIT); Mairesse, Jacques (UNU-MERIT)
    Abstract: This introduction to a special issue of EINT surveys a collection of ten papers that study various aspects of innovation and knowledge management and their impact on performance at the firm level for a number of countries. These studies have been conducted using data drawn from innovation surveys combined with data from a number of other sources. The issue illustrates the value of these surveys in improving our understanding of innovation in firms and raises a number of questions for future work in this area.
    Keywords: innovation, knowledge management, knowledge economy, firm performance
    JEL: O32 O33 D8 L25
    Date: 2006
  4. By: Martimort, D.; Poudou, J.-C.; Sand-Zantman, W.
    Abstract: This article analyzes the optimal contract design between an inventor and a developer. The inventor is privately informed on the value of his idea. The developer must exert some non-verifiable effort to improve the probability of success of this innovation but may also choose to opt out of the relationship upon learning the quality of the idea. While first-best efficiency requires that all marginal returns on innovation be left to the developer, second-best efficiency taking into account this bilateral asymmetric information leads to distort downwards the developer’s incentives to prevent innovators from overstating the value of their ideas. There exists a trade-off between inviting inventor to reveal their ideas and inducing both effort and participation from the developer. The extent of this trade-off depends on the regime of property rights on ideas, i.e., on how easy to steal ideas. Since decreasing the marginal share of developers makes it more difficult to have them participating to the contract, countervailing incentives might sometimes appear. Taking into account those various effects leads to reduce the responsiveness of the contract to the exact value of the idea and might force to give up additional rents to the developer. Some extensions of our framework, including the cases of limited commitment, partial disclosure and double moral hazard, are studied to show the robustness and limits of our previous findings.
    Keywords: Contracts, Innovation, Ideas Stealing, Bilateral Asymmetric Information
    JEL: D82 D86 L24 O31
    Date: 2006

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