Patent Protection, Takeovers, and Startup Innovation: A Dynamic Approach

Andreas Panagopoulos () and In-Uck Park

The Centre for Market and Public Organisation from The Centre for Market and Public Organisation, University of Bristol, UK

Abstract: The impact of IP protection on the innovation incentives of startup firms is examined in a dynamic model where an incumbent faces a sequence of potential startups and the incumbent's chance of winning an infringement lawsuit increases with the size of its patent portfolio. It is shown that takeover deals generate extra benefits for the incumbent via its enhanced future bargaining positions, a part of which accrues to the current startup as an increased bargaining share. This increased bargaining share can be large enough to justify the startup's innovation activity that would not have taken place otherwise. This effect may be greatest under moderate levels of IP protection, because the increase in the bargaining share, being proportional to the marginal benefits brought by the last patent added to the portfolio, would be too small if the protection was too weak while it would taper off too quickly if the protection was excessive.

Keywords: Patent litigation; takeovers; patent portfolios (search for similar items in EconPapers)
JEL-codes: K0 L21 L24 O31 O34 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2008-05
New Economics Papers: this item is included in nep-com, nep-ino, nep-ipr, nep-pr~, nep-law, nep-mic and nep-tid
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Citations: View citations in EconPapers (2)

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