Reiko Aoki

Sequential versus simultaneous choice with endogenous quality

In this paper we examine how the timing of investment affects the levels of quality chosen by firms. We show that in a model with vertical quality differentiation a game with sequential quality choice induces both firms to make smaller quality investments than they would in a game with simultaneous quality choice. Furthermore, we show that while aggregate profit is higher, both consumer and social surplus are lower under sequential quality choice.

International standards for intellectual property protection and R & D incentives

Abstract We examine the effect of alternative standards for intellectual property protection. Uniform protection, based on the GATT principle of non-discrimination, provides domestic and foreign firms with the same level of protection. Discriminatory protection, based on Section 337 of the U.S. trade laws provides different levels of protection depending upon where the firm is located. We show that discriminatory protection may not increase (and may decrease) domestic R & D. The effect of asymmetric patent protection depends on whether the rivals have pre-existing products, on the costs of R & D, and on the value of the potential innovation.

Patent licensing with spillovers

The purpose of this paper is to study the effect of spillover on extent of licensing when cost reducing innovation is introduced and licensed to a number of oligopolistic firms. We characterize the equilibrium number of licenses that are sold through an auction. An increase in the number of licenses has two effects. First, it increases the competition between the licensees. Second, due to spillover, the non-licensees become more efficient contributing to even more competition. We find that despite these effects, a patentee of a significant innovation will sell more licenses when there is spillover than without spillover thereby inducing even more competition. In this case, consumer surplus will be greater with spillover. However, if the innovation is less significant, then the patentee will sell less licenses with spillover thereby restrict competition. In this case the market price will be higher and the consumer surplus will be smaller.

Simultaneous signaling through investment in an R& D game with private information☆

Abstract We analyze an R&D game of two-sided incomplete information in which firms can invest in cost reducing technology before engaging in Cournot competition. Investment is observable, but R&D outcomes are not. We focus on partial pooling equilibria in which high cost firms mimic the strategy of low cost firms, resulting in under investment in equilibrium. These equilibria generally involve mixed strategies with the novel feature that players are not indifferent among their mixed strategies due to the beliefs and subsequent actions they induce. Further results suggest that firms may be willing to pay to keep their R& D outcomes concealed.

Compulsory Licensing of Technology and the Essential Facilities Doctrine

We look at compulsory licensing of intellectual property as remedy for anti-competitive practice. We identify aspects of intellectual property that warrants a different remedy from those using general definitions and remedies for essential facility. Based on the analysis, we present a characterisation of optimal compulsory licensing for a simple market.

Differentiated Standards and Patent Pools

We consider patent pool formation by owners of essential patents for differentiated standards that may be complements or substitutes in use. Pooling improves coordination in terms of royalty setting within a standard but provokes a strategic response from licensors in the competing standard. We characterise the incentives to form and defect from pools within standards and show how pool formation and stability depend on competition between standards. We also examine strategic patent pool formation by consortium standards and show that policies promoting compatibility of standards may increase or decrease welfare depending on the effects on the incentives to form pools.

Time factors of patent litigation and licensing

This study incorporates the concept of time into an analysis of patent litigation and licensing. We show that increasing imitation or litigation costs with a longer imitation lag or litigation time may have effects on licensing, settlement, and fees other than increasing the pecuniary costs. A higher pecuniary imitation cost always benefits the patentee and hurts the imitator. However, the patentee may prefer faster imitation to induce ex ante licensing, while the imitator may prefer slower imitation to reduce the settlement fee. We also show that both parties may find longer litigation beneficial, unlike higher legal costs.

Intellectual Property Clearinghouses and Investment in R&D

We examine the effects of third-party clearinghouses that license intellectual property on behalf of inventors when downstream uses of IP require licenses to multiple complementary innovations. We consider different simple clearinghouse royalty redistribution schemes, and different innovation environments. We show that clearinghouses generally increase incentives to invest in R&D as they increase efficiency in licensing. However, they may reduce expected profits of inventors who have the unique ability to develop a crucial component. We also show that clearinghouses also may increase or decrease expected welfare, and are more likely to be beneficial when R&D costs are relatively high, and/or the probability of success for inventors is relatively low.

Patent policy and public health in developing countries: lessons from Japan

The relevance of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement to developing countries has been widely discussed at international fora particularly regarding the impact of pharmaceutical product patents. Product patents restrict the ability of local firms to manufacture copies of new drugs possibly leading to less competition higher drug prices and lower welfare in developing countries. These are the unintended public health consequences of what is primarily an industrial policy tool. In this context we examine the Japanese experience of introducing product patents in 1976 which also attracted heated discussion at that time. The anticipated price increase and product shortage were largely avoided while the number of available products increased. Negative consequences of product patents were largely averted through a series of well-coordinated policy instruments the examination of which may provide suggestions for developing countries. (excerpt)

Third-Party Clearinghouses and Intellectual Property Licensing

We analyse the basic economic issues relating to third-party intellectual property clearinghouses that act as licensing intermediaries. We identify economic functions of clearinghouses and discuss ways that they can improve efficiency in licensing through centralisation and independence. We then examine clearinghouse strategy and policy with regard to establishing new clearinghouses, clearinghouse pricing and competition between clearinghouses. We also consider effects on incentives to invest in R&D and anti-trust issues.