Strategic determinants of decisions not to settle patent litigation

Settlement outcomes in patent litigation are modeled as resulting from strategies pursued by firms with their patented technologies. Hypotheses are derived for two types of influences: the use of patents as isolating mechanisms to protect valuable strategic stakes, and their 'defensive' role in obtaining access to external technologies through mutual hold-up. Parameter estimates from a sample selection probit model provide support for the strategic stakes hypotheses, while the evidence for mutual hold-up is inconclusive. Interindustry comparisons show that nonsettlement of patent suits in both research medicines and computers is increased by strategic stakes and, in addition, mutual hold-up appears to play an important role in computer patent suits. Copyright (C) 2003 John Wiley Sons, Ltd.