Litigation and Settlement in Patent Infringement Cases

TLDR

A patent grants its owner the right to sue and requires market supervision, leading to choices of litigation, settlement, or acceptance of entry. The study examines the optimal intensity of monitoring and its impact on the patent holder’s entry decision. In simultaneous games, high penalties do not deter settlement and entry likelihood rises with penalty, whereas in sequential games entry is less frequent than in simultaneous games.

Abstract

A patent grants its owner the right to sue intruders that have been identified. The patentholder must then supervise the market and react in case of infringement. His reaction may be to go to court, to settle, or to accept entry. We investigate how intensive the monitoring effort should be and how it will influence the entry decision. In a simultaneous game, even if the penalty paid by the infringer in case of a finding of liability is high, the patentholder may prefer a settlement to a trial. The likelihood of entry may increase with the penalty. In sequential games, regardless who plays first, entry occurs comparatively less often than in the simultaneous game.