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An Economic Perspective on Recent Patent Trends

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Innovation relies on the diffusion of research results so that inventions can be ... Optimal policy varies with details of innovation process in different industries. ... – PowerPoint PPT presentation

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Title: An Economic Perspective on Recent Patent Trends


1
An Economic Perspective on Recent Patent Trends
  • Linda Cohen
  • February 25, 2002

2
Plan for Talk
  • Principles for patent policies
  • Incentives of firms to patent
  • Trends in patenting
  • Why has patenting increased?
  • Review of evidence

3
Patent Policy to Encourage Innovation Static
Model
  • Costly research activities are a fixed cost of
    production. Absent an enforceable right to the
    results of research (intellectual property), in a
    competitive industry an inventor will be unable
    to recoup research expenditures and (i) other
    producers can use the intellectual property
    freely and (ii) the price will reflect the
    lowest marginal cost of production, i.e., cost of
    imitators rather than innovators.
  • Patents are necessary to provide an incentive for
    the initial investment in research, but need to
    be balanced against the efficiency losses from
    monopoly pricing of the new product and output
    restrictions due to grant of monopoly.

4
Patent policy dynamic model (1)
  • Innovation relies on the diffusion of research
    results so that inventions can be improved on,
    modified for use in different applications, or
    combined with other inventions for new
    applications. These second generation
    inventions may be most efficiently produced by
    individuals and firms other than the original
    inventor.

5
Dynamic model (2)
  • In theory, patenting facilitates innovation in a
    decentralized economy
  • Contractual arrangements between the patent
    holder and downstream or lateral inventors give
    the patent-holder an incentive to share patented
    technology
  • Potential downstream inventors can find out about
    the upstream invention because of the publication
    requirements of patenting
  • Protection of upstream rights is prerequisite
    to ability to protect downstream rights

6
Dynamic principles (3)
  • In practice, transactions costs, asymmetric
    information and inherent ambiguity in allocating
    the costs and benefits of technologies that
    derive from multiple innovations impede optimal
    contracting.
  • Example what is the appropriate scope of patents
    awarded for genetic code fragments and other
    research tools? This patented technology
    needs to be licensed to yield social benefits.
    Barriers to licensing include (i) difficulty in
    identifying potential licensees (ii) uncertainty
    over the extent of future research necessary to
    commercialize a technology and (iii) uncertainty
    over what commercial products will result from
    the invention and how large the market will be.

7
Summary
  • Efficient patent policy, from a utilitarian
    perspective, seeks to maximize innovation by
    balancing the benefits and costs of exclusivity,
    and thus defines the property right to have
    limited scope and duration. Optimal policy
    varies with details of innovation process in
    different industries.

8
Why Firms Patent Strategic Considerations
  • Blocking a firm may obtain a patent in order to
    block technological development by others, or to
    preempt another firm from obtaining the patent
    and using it to block future activities.
  • Signalling individuals or firms may obtain
    patents to provide valid signal of the value of
    their human capital to investors.
  • Litigation patents give access to courts and a
    mechanism to engage competitors in costly
    litigation.
  • Response to litigation patents provide
    protection against litigation by establishing a
    counter-suit threat.

9
Trends in Patenting in the US
10
Structural changes, 1980s
  • Bayh-Dole, making it easier for universities and
    government laboratories to patent research
    results. This meant a shift towards allowing
    fundamental or basic research to be patented.
  • Restructured Patent Office with greatly expanded
    resources and fee-based support for activities
    (currently a profit center for US Government).
    This was intended to lower the cost of patenting.
  • Reorganized judicial review so that all patent
    appeals were heard by the Court of Appeals for
    the Federal Circuit. This was intended to
    clarify patent law and enhance expertise of
    judicial reviewers.

11
Hypotheses about patent counts
  • More patents and same level of innovation?
    Recall that the Patent Office now supports itself
    through collection of patent fees -- no patents,
    no fees, no office. Citation evidence.
  • Alternatively, the enhanced value of patents
    means enhanced value of research, more research
    and more patents? (preferred outcome no
    evidence)
  • Greater access to courts means more strategic use
    of patents and courts as anti-competitive tool?
    (then, high level of patenting is the bad
    equilibrium). Survey evidence, but inconclusive
  • Joint evolution in patenting and industry
    structure allowing for outsourcing of research.
    Impact on innovation unknown
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