No-Challenge Clauses in Patent Licensing - Blessing or Curse?

Buehler, Benno;Hunold, Matthias;Schlütter, Frank
(2021) , 65 pages

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  • Buehler, Benno
    Author
  • Hunold, Matthias
    Author
  • Schlütter, FrankUCLouvain
    Author
Abstract
We analyze the effects of no-challenge clauses that prevent licensees from challenging the validity of patents. Contrary to popular arguments, we show that banning these clauses does not necessarily improve the frequency of successful patent challenges. Depending on the patent strength, patent holders may profitably offer license contracts that incentivize licensees to not challenge the patent. Even worse, such a strategy can lead to higher running royalties and lower consumer surplus compared to contracts with no-challenge clauses. We demonstrate that measures that aim at improving the prospects of patent challenges, such as prohibiting termination-upon-challenge clauses, can cause additional detrimental effects.
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Buehler, B., Hunold, M., & Schlütter, F. (2021). No-Challenge Clauses in Patent Licensing - Blessing or Curse? (LIDAM Discussion Paper CORE 2021/32). https://hdl.handle.net/2078.5/106990