Working Paper: CEPR ID: DP16902
Authors: Fabian Griem; Roman Inderst
Abstract: We model negotiations over patent royalties in the shadow of litigation through a Nash-in-Nash approach, where outside options, triggered in case of disagreement, are derived from a subsequent game of litigation. The outcome of litigation depends both on "hard determinants", such as relative patent strength, and on "soft determinants", such as parties' efficacy in litigation or their (known) preparedness to disrupt negotiations in favor of litigation. Amongst other things, this has implications for the interpretation of observed royalties in empirical analysis.
Keywords: royalties; litigation; Nash-in-Nash
JEL Codes: C71; D45; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| litigation costs (K41) | negotiated royalties (O34) |
| bargaining power (C79) | negotiated royalties (O34) |
| litigation efficacy (K41) | outside options (C79) |
| outside options (C79) | bargaining power (C79) |
| litigation costs (K41) | bargaining power (C79) |
| aggressiveness in negotiations (C78) | royalty outcomes (D33) |
| lower litigation costs (K41) | favorable one-way royalties (D42) |