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Patent Assertions: Are We Any Closer to Aligning Reward to Contribution?

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  • Fiona Scott Morton
  • Carl Shapiro

Abstract

The 2011 America Invents Act (AIA) was the most significant reform to the United States patent system in over 50 years. However, the AIA did not address a number of major problems associated with patent litigation in the United States. In this paper, we provide an economic analysis of post-AIA developments relating to patent assertion entities (PAEs) and standard-essential patents (SEPs). For PAEs and SEPs, we examine the alignment, or lack of alignment, between the rewards provided to patent holders and their social contributions. Our report is mixed. Regarding PAEs, we see significantly closer alignment between rewards and contributions, largely due to a series of rulings by the Supreme Court. Legislation currently under consideration in Congress would further limit certain litigation tactics used by PAEs that generate rewards unrelated to contribution. We also see some notable developments relating to SEPs, especially with the recent reform to the patent policies of the Institute of Electrical and Electronics Engineers (IEEE), a leading standard-setting organization (SSO) and with several recent court decisions clarifying what constitutes a fair, reasonable and nondiscriminatory (FRAND) royalty rate. However, other steps that could better align rewards with contributions on the SEP front have largely stalled out, particularly because other major SSOs do not seem poised to follow the lead of the IEEE. Antitrust enforcement in this area could further align rewards and contributions.

Suggested Citation

  • Fiona Scott Morton & Carl Shapiro, 2016. "Patent Assertions: Are We Any Closer to Aligning Reward to Contribution?," Innovation Policy and the Economy, University of Chicago Press, vol. 16(1), pages 89-133.
    • Handle: RePEc:ucp:ipolec:doi:10.1086/684987
    DOI: 10.1086/684987
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    References listed on IDEAS

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    1. Joseph Farrell & Carl Shapiro, 2008. "How Strong Are Weak Patents?," American Economic Review, American Economic Association, vol. 98(4), pages 1347-1369, September.
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    Cited by:

    1. Ajay Agrawal & Joshua Gans & Avi Goldfarb, 2019. "Economic Policy for Artificial Intelligence," Innovation Policy and the Economy, University of Chicago Press, vol. 19(1), pages 139-159.
    2. Erik Hovenkamp & Jorge Lemus, 2022. "Antitrust Limits on Patent Settlements: A New Approach," Journal of Industrial Economics, Wiley Blackwell, vol. 70(2), pages 257-293, June.
    3. Margaret K. Kyle, 2019. "The Alignment of Innovation Policy and Social Welfare: Evidence from Pharmaceuticals," NBER Chapters, in: Innovation Policy and the Economy, Volume 20, pages 95-123, National Bureau of Economic Research, Inc.
    4. Galetovic, Alexander & Haber, Stephen & Zaretzki, Lew, 2018. "An estimate of the average cumulative royalty yield in the world mobile phone industry: Theory, measurement and results," Telecommunications Policy, Elsevier, vol. 42(3), pages 263-276.
    5. Brander, James A. & Spencer, Barbara J., 2021. "Patent assertion entities and the courts: Injunctive or fee-based relief?," International Review of Law and Economics, Elsevier, vol. 65(C).
    6. Love, Brian & Lefouili, Yassine & Helmers, Christian, 2020. "Do Standard-Essential Patent Owners Behave Opportunistically? Evidence from U.S. District Court Dockets," TSE Working Papers 20-1160, Toulouse School of Economics (TSE).
    7. Nancy Gallini, 2017. "Do patents work? Thickets, trolls and antibiotic resistance," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(4), pages 893-926, November.
    8. Steven Berry & Martin Gaynor & Fiona Scott Morton, 2019. "Do Increasing Markups Matter? Lessons from Empirical Industrial Organization," Journal of Economic Perspectives, American Economic Association, vol. 33(3), pages 44-68, Summer.
    9. Gianluca Orsatti & Valerio Sterzi, 2018. "Do Patent Assertion Entities Harm Innovation? Evidence from Patent Transfers in Europe," Cahiers du GREThA (2007-2019) 2018-08, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
    10. Valerio STERZI & Jean-Paul RAMESHKOUMAR & Johannes VAN DER POL, 2020. "Non-practicing entities and transparency in patent ownership in Europe," Bordeaux Economics Working Papers 2020-10, Bordeaux School of Economics (BSE).

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