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2006

Innovation

Vassar College

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Learning By Suing: Structural Estimates Of Court Errors In Patent Litigation, Alan C. Marco Nov 2006

Learning By Suing: Structural Estimates Of Court Errors In Patent Litigation, Alan C. Marco

Faculty Research and Reports

This paper presents structural estimates of the probability of validity, and the probability of Type I and Type II errors by courts in patent litigation. Patents are modeled as uncertain property rights, and implications of the model are tested using stock market reactions to patent litigation decisions. While court errors are inherently unobservable, the estimation quantifies beliefs about patent validity and court errors in a Bayesian context by relying on observable win rates and stock market reactions.

I estimate that the underlying beliefs about validity average from 0.55 to 0.70 for litigated patents. For a number of different ...