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The uninvited guest: patents on Wall Street

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  • Robert P. Merges
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    Abstract

    For at least the past twenty-five years, financial services industries have been creating innovative products and services without the help of patents. The 1998 State Street Bank case changed all this, making patents freely available in these industries. Will patents help or hurt financial services innovation in the long run? This article sheds some light on this issue. ; Before the advent of patents, several “appropriability” mechanisms protected financial services innovation: “first mover” advantages, complementary or “cospecific” assets, and trade secrecy. Evidence suggests that, in the immediate post-patent era, financial firms’ first order of business was to protect these traditional appropriability practices. This attitude explains the early push to secure a “prior use rights” defense to protect established firms against patent claims by upstart outsiders. From a historical perspective, this reaction to the “patent threat” tracks that of other industries: in particular, nineteenth-century railroads and the software industry of the 1980s. ; In the end, the author argues, patents are not likely to cause any real and lasting problems. Although patents may increase the costs of interchanging innovative ideas, they may bring some unintended benefits as well—by fostering spin-offs and facilitating entry by start-ups, for example. Like random shocks in the natural world, the new patent regime provides a shakeup that could bring some good but unpredictable consequences.

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    File URL: http://www.atl.frb.org/filelegacydocs/erq403_merges.pdf
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    Bibliographic Info

    Article provided by Federal Reserve Bank of Atlanta in its journal Economic Review.

    Volume (Year): (2003)
    Issue (Month): Q4 ()
    Pages: 1-14

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    Handle: RePEc:fip:fedaer:y:2003:i:q4:p:1-14:n:v.88no.4

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    Keywords: Patents ; Financial services industry;

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    1. Wesley M. Cohen & Richard R. Nelson & John P. Walsh, 2000. "Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (or Not)," NBER Working Papers 7552, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Bronwyn H. Hall, 2009. "Business And Financial Method Patents, Innovation, And Policy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(s1), pages 443-473, 09.

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