Patent pools,litigation, and innovation

This article analyzes patent pools and their effects on litigation incentives, overall royalty rates, and social welfare when patent rights are probabilistic and can be invalidated in court. With probabilistic patents, the license fees reflect the strength of the patents. We show that patent pools of complementary patents can be used to discourage infringement by depriving potential licensees of the ability to selectively challenge patents and making them committed to a proposition of all‐or‐nothing in patent litigation. If patents are sufficiently weak, patent pools with complementary patents reduce social welfare as they charge higher licensing fees and chill subsequent innovation incentives.     

Patent pools,vertical integration,and downstream competition

Patent pools are commonly used to license technologies to manufacturers. Whereas previous studies focused on manufacturers active in independent markets, we analyze pools licensing to competing manufacturers, allowing for multiple licensors and nonlinear tariffs. We find that the impact of pools on welfare depends on the industry structure: whereas they are procompetitive when no manufacturer is integrated with a licensor, the presence of vertically integrated manufacturers triggers a novel trade‐off between horizontal and vertical price coordination. Specifically, pools are anticompetitive if the share of integrated firms is large, procompetitive otherwise. We then formulate information‐free policies to screen anticompetitive pools.     

Independent boards and innovation

Much research has suggested that independent boards of directors are more effective in reducing agency costs and improving firm governance. How they influence innovation is less clear. Relying on regulatory changes, we show that firms that transition to independent boards focus on more crowded and familiar areas of technology. They patent and claim more and receive more total future citations to their patents. However, the citation increase comes mainly from incremental patents in the middle of the citation distribution; the numbers of uncited and highly cited patents—arguably associated with riskier innovation strategies—do not change significantly.     

Patent privateering,litigation, and R&D incentives

We model “patent privateering”—whereby producing firms sell patents to Patent Assertion Entities (PAEs), which then license them under the threat of litigation—in a bargaining game. PAEs can negotiate higher licensing fees than producing firms because they cannot be countersued for infringement. Privateering produces two countervailing effects: it increases the offensive value of patents, whereas it decreases their defensive value and lowers the aggregate surplus of producing firms. Embedding the bargaining game into a Research and Development (R&D) contest for multiple complementary technologies, we find that privateering may increase R&D investments, even as it induces more litigation threats and reduces industry profits.     

Do Banks Value Innovation? Evidence from US Firms

This study evaluates how innovation within companies alleviates the information asymmetry problems in relationship lending. We hypothesize that patenting activities could reveal favorable private information and, hence, reduce the information asymmetry between innovative borrowers and banks. Using a sample of US patenting firms from 1987 to 2004, we show that borrowers with higher innovation capability (revealed by having more patent applications, higher research & development (R&D) productivity, or higher‐quality patents) enjoy lower bank‐loan spreads and better nonprice‐related loan terms. Our evidence further suggests that the information benefits of patenting activities on loan spreads is more pronounced for small or less R&D‐intensive firms.     

The rules of standard‐setting organizations: an empirical analysis

This article empirically explores standard‐setting organizations' policy choices. Consistent with our earlier theoretical work, we find (i) a negative relationship between the extent to which an SSO is oriented to technology sponsors and the concession level required of sponsors and (ii) a positive correlation between the sponsor friendliness of the selected SSO and the quality of the standard. We also develop and test two extensions of the earlier model: the presence of provisions mandating royalty‐free licensing is negatively associated with disclosure requirements, and the relationship between concessions and user friendliness is weaker when there is only a limited number of SSOs.     

Corporate Philanthropy and Innovation: The Case of the Pharmaceutical Industry

For decades now, pharmaceutical companies have engaged in corporate social responsibility (CSR) initiatives to strengthen their reputations, brand names, marketing, and public relations. But evidence from the authors’ recent study suggests that one particularly effective form of corporate philanthropy has been direct contributions to universities and other non‐profit research organizations, many of which have led to relationships that have developed into highly productive research partnerships. Such direct industry support for academic institutions and other research partners has ranged from unrestricted gifts to fee‐for‐service, and has taken the form of joint ventures and new research institutions as well as research contests and other types of collaborations. Moreover, such corporate giving should be viewed as an important, and highly productive, part of these companies’ innovation strategies. In support of this argument, the authors report that direct contributions by big pharma result in a greater quantity and quality of innovations—as measured by new patents—than the research that results from other forms of corporate philanthropy, notably grants made to and administered by the companies’ own foundations. Such direct contributions are also associated with patents that are more likely to broaden the corporate scope beyond the firms’ traditional areas of expertise, and that tend to have greater success in obtaining FDA drug approvals, than the patents resulting from R&D conducted by corporate‐sponsored foundations.     

The superiority and disciplining role of independent analysts

We show that although forecasts of independent analysts are less accurate ex post, they yield forecast errors that are more strongly associated with abnormal stock returns. This suggests that forecasts of independent analysts are superior to those of nonindependent analysts in representing ex ante market expectations. We also show that forecasts of nonindependent analysts become more accurate and less biased, and produce forecast errors more strongly associated with abnormal stock returns when independent analysts are following the same firms than when they are not. This suggests that the presence of independent analysts disciplines the behavior of nonindependent analysts.     

Imperfect competition and quality signalling

We examine the interplay of imperfect competition and incomplete information in the context of price competition among firms producing horizontally and vertically differentiated substitute products. Incomplete information about vertical quality (consumer satisfaction) signalled via price softens price competition. Low‐quality firms always prefer the incomplete information game to the full‐information analog. Moreover, for “high‐value” markets with a sufficiently high proportion of high‐quality firms, these firms also prefer incomplete information to full information. We find that an increase in the loss to consumers associated with the low‐quality product may perversely benefit low‐quality firms; we consider applications to tort reform and professional licensing.     

Activity-based costing systems and incremental costs

This article derives, in a comprehensive but informal way, the essential conditions for activity-based costing (ABC) and for costs proportional with output volume (CVO), such as variable material and component costs, to measure economic costs defined as incremental costs. Without this property these costing systems may give incorrect signals in decision making, such as in pricing, in altering the product portfolio, in make or buy and outsourcing decisions and in cost management. In contrast to the existing literature, these conditions are found to be extensive and to require a fairly detailed exploration of the complex and multifaceted nature of technology. Conditions on technology to allow the usual definition of cost pools are shown to require that production involves neither cost complementarities nor non-complementarities, that inputs in a cost pool are independent of those in other cost pools and that technology takes the form that the input mixes for a cost pool are fixed and invariant with volume. Essential conditions on the input market and the costing system are also considered. It will be indicated that a perfect market for inputs is required and that cost drivers are required to be linear homogeneous in the inputs in their cost pools. It is also shown that the type of cost function that can be entertained is restricted by those permissible technologies which allow incremental costs to be generated. These assumptions are thus imported into all the uses of these methods. Failure to satisfy these conditions suggests that many costs cannot be easily treated using ABC or CVO. Such failure also leads to distorting accounting numbers away from economic costs.     

Patent thickets,courts, and the market for innovation

We study how fragmentation of patent rights and the formation of the Court of Appeals for the Federal Circuit (CAFC) affected the duration of patent disputes, and thus the speed of technology diffusion through licensing. We develop a model of patent litigation which predicts faster settlement when patent rights are fragmented and when there is less uncertainty about court outcomes, as was associated with the “pro‐patent shift” of the CAFC. We confirm these predictions empirically using a data set that covers patent suits in U.S. district courts during the period 1975–2000. Finally, we analyze how fragmentation affects total settlement delay, considering both the reduction in dispute duration and the increase in the number of patent negotiations.     

通信标准必要专利跨领域许可FRAND义务研究

在通信标准必要专利跨领域许可的进程中，通信产业与标准产品产业就供应链上的许可模式存在分歧。回溯分歧的发生背景和诉讼呈现可知，该分歧的实质为FRAND义务分歧，且应被锚定为终端级自由许可和组件级优先许可两种模式的争议。经总体检视，终端级许可将引致上游供应商实施行为法律确定性缺失、高交易成本困境与专利劫持的潜在风险，组件级许可则具有提升许可效率和抑制专利劫持的合理性，然而组件级优先许可义务的设定不符合比例原则。SEP持有人在有权自由选择许可层级的基础上，应充分履行包含FRAND谈判义务与SEP开放义务的FRAND义务，以消除前述风险。SEP持有人违反FRAND谈判义务的，将受SEP侵权不停止规则的规制，SEP开放义务则依托利益第三人条款的明确约定或合同解释得到履行。     

The dynamics of the transfer and renewal of patents

This article explores new data on the transfer and renewal of U.S. patents and interprets this new evidence using a model of patent transfers and renewal. We find that the proportion of transferred patents is large and differs across technology fields and especially type of patentees. We also find that the probability of a patent being traded depends on a number of factors—the age of the patent, the number of citations received by a given age, the patent generality, and whether the patent has been previously traded or not. These findings are consistent with the predictions of a model of patent transfers and renewals.     

Risk perception,regulation, and unlicensed child care: lessons from Ontario,Canada

In 2014, the Province of Ontario, Canada undertook a number of legislative changes regarding child care. Part way through the process, a series of tragic focusing events occurred: a number of infants and children died in unlicensed child care over a short period of time. Despite these events, the Province chose to allow a portion of the family child care (FCC) sector to remain unlicensed and essentially unregulated in a sector that is otherwise subject to strict licensing and regulation. Drawing on research on risk regulation, we analyse FCC regulation in comparison to other sectors and find that FCC is surprisingly under-regulated, given the health and safety risks. Legislative debate analysis reveals a number of rationales for non-regulation. In addition to pragmatic political concerns such as costs associated with licensing, analysis reveals concerns about choice and accessibility over quality and safety. We conclude with a call for a research agenda to further examine parents’ and policy-makers’ perceptions of risk.     

Fair valuation of insurance liabilities via mean-variance hedging in a multi-period setting

A general class of fair valuations which are both market-consistent (mark-to-market for any hedgeable part of a claim) and actuarial (mark-to-model for any claim that is independent of financial market evolutions) was introduced in Dhaene et al. [Insurance: Mathematics & Economics, 76, 14–27 (2017)] in a single period framework. In particular, the authors considered mean-variance hedge-based (MVHB) valuations where fair valuations of insurance liabilities are expressed in terms of mean-variance hedges and actuarial valuations. In this paper, we generalize this MVHB approach to a multi-period dynamic investment setting. We show that the classes of fair valuations and MVHB valuations are equivalent in this generalized setting. We derive tractable formulas for the fair valuation of equity-linked contracts and show how the actuarial part of their MVHB valuation decomposes into a diversifiable and a non-diversifiable component.     

“Relative Importance of Risk Sources in Insurance Systems”, Edward W. Frees,April 1998

Abstract

This paper considers a Sparre Andersen collective risk model in which the distribution of the interclaim time is that of a sum of n independent exponential random variables; thus, the Erlang(n) model is a special case. The analysis is focused on the function φ(u), the expected discounted penalty at ruin, with u being the initial surplus. The penalty may depend on the deficit at ruin and possibly also on the surplus immediately before ruin. It is shown that the function φ(u) satisfies a certain integro-differential equation and that this equation can be solved in terms of Laplace transforms, extending a result found in Lin (2003). As a consequence, a closed-form expression is obtained for the discounted joint probability density of the deficit at ruin and the surplus just before ruin, if the initial surplus is zero. For this formula and other results, the roots of Lundberg’s fundamental equation in the right half of the complex plane play a central role. Also, it is shown that φ(u) satisfies Li’s (2003) renewal equation. Under the assumption that the penalty depends only on the deficit at ruin and that the individual claim amount density is a combination of exponential densities, a closed-form expression for φ(u) is derived. In this context, known results of the Cauchy matrix are useful. Surprisingly, certain results are best expressed in terms of divided differences, a topic deleted from the actuarial examinations at the end of last century.     

Soft Computing Techniques for Querying XBRL Data

Availability of business data is an important aspect of effective financial activities. An easy access to financial information has immense influence on actions and decisions regarding investing, trade and operations of companies and firms. The proposed standard – eXtensible Business Reporting Language (XBRL) – provides a means to create a uniform framework for representing corporate and financial information. XBRL defines an easily interpretable, machine-readable and XML-based data format. Its flexibility allows for representing business data using different languages, as well as following different regulation standards. One of important benefits of XBRL is application of XML-based tools and systems that enable easy preparation, processing and validation of corporate data. It is also possible to use XML-based storage and query systems. In this paper we propose and describe a concept of soft queries. They provide the users with a human-friendly interface for interacting with XBRL data. These queries are equipped with linguistic terms (such as large, medium, small) and linguistic qualifiers (all, mostly). Such queries are able to provide the users with results similar to the results obtained when they analyse data themselves. Linguistic terms and qualifiers are represented as fuzzy sets. Fuzzy-based operations and aggregation operators allow for mimicking a human-like processing of data. The proposed approach is illustrated with queries executed on an XBRL document. Copyright © 2015 John Wiley & Sons, Ltd.     

Do enhancements to loyalty programs affect demand? The impact of international frequent flyer partnerships on domestic airline demand

Frequent flyer programs (FFPs) may allow airlines to exercise market power on routes that depart from airports at which they are dominant. Prior research, however, has not disentangled the effects of FFPs from other advantages that dominant airlines may possess. I exploit variation in the extent and scope of U.S. airlines' FFP partnerships with international carriers to evaluate the economic impact of enhancements to FFPs. The results indicate that enhancements to an airline's FFP are associated with increases in its demand on specifically those routes that depart from airports at which it is dominant.     

Director expertise and co-option in industry superannuation funds?

This study examines whether independent directors who possess financial expertise and are independent from the CEO (i.e., non-co-opted) are associated with improved outcomes for industry superannuation funds. Our results highlight that independence alone is insufficient to improve fund outcomes. Instead, we find that only non-co-opted independent directors benefit fund members in terms of higher performance and lower fees. Moreover, we find that independent directors' financial expertise is not associated with fund performance and fees. Our study has implications for regulators and superannuation funds who are currently debating the need for one-third independent directors on the board of Australian superannuation funds.     

Principle of equivalent utility and universal variable life insurance pricing

In this paper we study the pricing problem for a class of universal variable life (UVL) insurance products, using the idea of principle of equivalent utility. As the main features of UVL products we allow the (death) benefit to depend on certain indices or assets that are not necessarily tradable (e.g., pension plans), and we also consider the “multiple decrement” cases in which various status of the insured are allowed and the benefit varies in accordance with the status. Following the general theory of indifference pricing, we formulate the pricing problem as stochastic control problems, and derive the corresponding HJB equations for the value functions. In the case of exponential utilities, we show that the prices can be expressed explicitly in terms of the global, bounded solutions of a class of semilinear parabolic PDEs with exponential growth. In the case of general insurance models where multiple decrements and random time benefit payments are all allowed, we show that the price should be determined by the solutions to a system of HJB equations, each component corresponds to the value function of an optimization problem with the particular status of the insurer.