Do Pay-for-Delay Agreements Promote Innovation?: The Effects Across Innovation Cycles

Abstract

Since the first EU case in 2013, pay-for-delay agreements have been considered a restriction of competition by object under Article 101 TFEU. However, according to parties to these agreements, the harm caused to consumers can be balanced out by efficiencies in terms of increased incentives to innovate. The aim of this thesis is to assess this efficiency argument by studying the effect of pay-fordelay agreements on innovation. It appears from the analysis that this effect partly depends on the innovation cycle it relates to: either first-generation innovation or subsequent innovation.  The impact on first-generation innovation is studied sequentially, by reference to the literature, for three dimensions of innovation: returns on innovation, R&D investments and the innovative output. We conclude that first-generation innovation is either promoted or nonaffected. Subsequent innovation is then studied from both a theoretical and an empirical point of view. The theoretical analysis focuses on two distinct issues: the incentives for first-generation innovators to invest in an improved version of their patented invention, and the ability of follow-on innovators to use existing knowledge. Based on this theoretical analysis, we put forward the revocation of a patent as a proxy for pay-for-delay agreements. We further use this assumption to design an empirical model whose objective is to estimate these agreements’ effect on innovation. We conclude that second-generation innovation is either unaffected or hindered.