Patents, invalidity, and the strategic transmission of enabling information

Published

Journal Article

The patent system encourages innovation and knowledge disclosure by providing exclusivity to inventors. Exclusivity is limited, however, because a substantial fraction of patents have some probability of being ruled invalid when challenged in court. The possibility of invalidity - and an ensuing market competition - suggests that when an innovator's capability (e.g., cost of production) is private information, there is potential value to an innovator from signaling strong capability via a disclosure that transfers technical knowledge to a competitor. We model a product-innovation setting in which a valid patent gives market exclusivity and find a unique signaling equilibrium. One might expect that as the probability that a patent will be invalid becomes low, greater disclosure will be induced. We do not find this expectation to be generally supported. Further, even where full disclosure arises in equilibrium, it is only the less capable who make full disclosures. The equilibrium analysis also highlights many of the novel and appealing features of enabling knowledge disclosure signals.

Full Text

Duke Authors

Cited Authors

  • Anton, JJ; Yao, DA

Published Date

  • June 1, 2003

Published In

Volume / Issue

  • 12 / 2

Start / End Page

  • 151 - 178

International Standard Serial Number (ISSN)

  • 1058-6407

Digital Object Identifier (DOI)

  • 10.1162/105864003766754189

Citation Source

  • Scopus