The independent invention defence in a Cournot duopoly model

Maurer and Scotchmer (2002) pointed out that patents may be inferior to other forms of intellectual property in that the independent invention is not a defence to infringement. The authors’ analysis refers to situations in which there is an unlimited number of potential entrants by independent duplication. If independent invention were a defence to infringement, the continual threat of entry would induce the patent-holder to license its technology on terms that commit to a lower output price, and this is where the social benefit lies. In this note we extend the analysis to the case of a single potential entrant when the law impose certain restrictions on the contracts that patent holders and licensees can subscribe. We show that these legal restrictions may be partial substitutes for the continual threat of entry by as yet unidentified subjects.