Manufacturer’s strategic decision on supplier’s technology infringement in co-opetitive supply chain

Abstract

<p>We examine a manufacturer’s strategic decision to its supplier’s potential technology infringement behavior within a co-opetitive supply chain, where the supplier serves as both the manufacturer’s production partner and market competitor. Our study investigates four potential reactions for the manufacturer when faced with the supplier’s possible infringement: no response, initiating patent litigation, entering a cross-licensing contract, or establishing a pure licensing agreement with the supplier. The supplier possesses the choice to decide whether to infringe on the manufacturer’s technology. By comparing equilibria among these models, we find that when the lawsuit winning rate is high, a lawsuit can demonstrate effectiveness, and a pure licensing contract can further fortify the positions of both parties. Surprisingly, a cross-licensing contract does not yield a similar effect and is absent from the equilibrium strategy in this scenario. Conversely, in cases where the lawsuit winning rate is low, litigation may not reach equilibrium. Instead, both parties could opt for either a pure licensing contract or a cross-licensing contract. Interestingly, while both types of licensing agreements significantly enhance outcomes for both parties in most instances, the no response model can still represent the equilibrium strategy under specific circumstances. <br></p>