We model “patent privateering”—whereby producing firms sell patents to Patent Assertion Entities (PAEs), which then license them under the threat of litigation—in a bargaining game. PAEs can negotiate higher licensing fees than producing firms because they cannot be countersued for infringement. Privateering produces two countervailing effects: it increases the offensive value of patents, whereas it decreases their defensive value and lowers the aggregate surplus of producing firms. Embedding the bargaining game into a Research and Development (R&D) contest for multiple complementary technologies, we find that privateering may increase R&D investments, even as it induces more litigation threats and reduces industry profits.

We study pay-for-delay settlements between a patent holder and a challenger when the patent holder can introduce follow-on products. We show that ignoring follow-on products biases the inferred competitive harm of pay-for-delay settlements (the "Actavis inference"). The reason is that patent invalidation triggers an earlier introduction of follow-on products which changes pay-for-delay negotiation's payoffs relative to the case of no follow-on products. When follow-on products are ignored, we show that an inference based on a reverse payment overestimates patent strength. If parties cannot use payments (as in pure-delay settlements), follow-on products may push the parties to settle on an earlier entry date relative to the entry date negotiated in the absence of follow-on products, and litigation may arise in equilibrium.

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We study information disclosure and diversification in contests with technological uncertainty-where agents can pursue different technologies to compete in the contest, but there is uncertainty regarding which is the right one. The principal can credibly reveal information about the technologies to affect the agents' choices. Information revelation may prompt agents to work on the right technology, which is valuable for the principal, but it can also reduce technological diversification, which may be detrimental for the principal in a setting with technological uncertainty. We characterize the optimal information disclosure policy and show that it can be maximally or partially revealing, or completely uninformative, depending on: (i) the value of diversification; (ii) the quality of the principal's information; and (iii) the extent of technological uncertainty. Our results apply to various managerial settings such as innovation contests, tournaments within organizations, and procurement.

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