By using a simple model of patent settlement, in this paper we show that even if side payments (negative fixed fees) are banned, a licensing agreement to settle a patent dispute may harm consumers in comparison with the expected outcome of the lawsuit. This may occur when the challenger's...

We present a simple model where patents are inferior to secrecy, meaning that when private returns from innovation under the two regimes are the same, society is better off if innovator chooses not to patent. In our model trade secret licensing is envisaged and inferiority of patents depends on...