Revisiting Antitrust Limits to Probabilistic Patent Disputes: Strategic Entry and Asymmetric Information

Abstract

We consider separately strategic entry and asymmetric information in the design of the settlement policy governing patent disputes, with a focus on Shapiro's (2003) consumer protection rule. We show that, when a potential entrant strategically incurs an entry cost before engaging in a patent dispute, a more stringent settlement policy of deterring costly entry benefits the patent-holder and may raise static efficiency. Concerning asymmetric information, when the disputants, but not the court, learn the patent validity, we derive an 'expectation test, ' which requires that a laxer settlement policy be coupled with higher expected patent validity under settlement. Copyright 2012, Oxford University Press.

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