Attracting Skeptical Buyers: Negotiating for Intellectual Property Rights

Intellectual Property and Patents

Article Snapshot

Author(s)

James Anton and Dennis A. Yao

Source

International Economics Review, Vol. 49, February 2008

Summary

This paper looks at how confidentiality protects innovation.

Policy Relevance

Inventors cannot sell their ideas without revealing them. To encourage them to sell, the ideas need some protection. But not too much, or buyers will hesitate to negotiate.

Main Points

  • Inventors often sell their ideas to others, such as firms interested in using the idea in a product. To sell the idea, the inventor must reveal it to the buyer.

 

  • Inventors might fear that revealing the idea to the seller would let the seller use the idea even if he never agrees to pay for it. A confidentiality agreement that gives the seller the right to sue for unauthorized use might help.

 

  • But, in practice, sellers often (not always) agree to give up the right to sue if confidential information is revealed, unless it is protected by patent or copyright. This encourages sellers to participate in the deals, especially when several firms are involved. 

 

  • The confidentiality agreement is of limited worth to sellers anyway, because even if a would-be buyer did copy the idea, it would be hard to prove in court that the buyer did not come up with the idea on his own.

 

  • Stronger IP might not help innovators much, if it leads buyers to fear lawsuits more.

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