It has been commonly argued that the decision of a large number of inventors to license complementary patents necessary for the development of a product leads to excessively large royalties. This well-known Cournot-complements or royalty-stacking effect would hurt efficiency and downstream...

This paper studies the effect of litigation as a way to enforce patents when firms hold private information. A structure to the legal system is provided, allowing a better understanding of the settlement and litigation decisions taken by entrepreneurs. The model is broadly consistent with recent...