Patent Litigation Insurance and R&D Incentives

Abstract

A major policy concern regarding patenting activity is related to the actual enforceability of the patents granted by Patent Offices. The risk of facing elevated legal costs to defend patent rights can affect ex-ante incentives to invest in RD (ii) coverage is voluntary and the insurer cannot discriminate between patents, and (iii) coverage is compulsory. The model highlights a set of peculiar strategic characteristics of insurance for legal expenditures which contribute to singling out the reasons underlying the underdevelopment of this market. We suggest that the crucial reason for such a failure is not adverse selection; consequently, we challenge the benefits of making coverage compulsory.