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Patent Reform: Aligning Reward and Contribution

In: Innovation Policy and the Economy, Volume 8

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  • Carl Shapiro

Abstract

Economists and policy makers have long recognized that innovators must be able to appropriate a reasonable portion of the social benefits of their innovations if innovation is to be suitably rewarded and encouraged. However, this paper identifies a number of specific fact patterns under which the current U.S. patent system allows patent holders to capture private rewards that exceed their social contributions. Such excessive patentee rewards are socially costly, since they raise the deadweight loss associated with the patent system and discourage innovation by others. Economic efficiency is promoted if rewards to patent holders are aligned with and do not exceed their social contributions. This paper analyzes two major reforms to the patent system designed to spur innovation by better aligning the rewards and contributions of patent holders: establishing an independent invention defense in patent infringement cases, and strengthening the procedures by which patents are re-examined after they are issued. Three additional reforms relating to patent litigation are also studied: limiting the use of injunctions, clarifying the way in which “reasonable royalties†are calculated, and narrowing the definition of “willful infringement.â€

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This chapter was published in:

  • Adam B. Jaffe & Josh Lerner & Scott Stern, 2008. "Innovation Policy and the Economy, Volume 8," NBER Books, National Bureau of Economic Research, Inc, number jaff08-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 5303.

    Handle: RePEc:nbr:nberch:5303

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    1. Richard Gilbert and Carl Shapiro., 1989. "Optimal Patent Length and Breadth," Economics Working Papers, University of California at Berkeley 89-102, University of California at Berkeley.
    2. James Bessen & Eric Maskin, 2009. "Sequential innovation, patents, and imitation," RAND Journal of Economics, RAND Corporation, vol. 40(4), pages 611-635.
    3. Gallini, Nancy & Scotchmer, Suzanne, 2001. "Intellectual Property: When Is It the Best Incentive System?," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt9wx2c2hz, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    4. Deepak Hegde & David C. Mowery & Stuart Graham, 2007. "Pioneers, Submariners, or Thicket-builders: Which Firms Use Continuations in Patenting?," NBER Working Papers 13153, National Bureau of Economic Research, Inc.
    5. Llobet, G. & Hopenhayn, H. & Mitchell, M., 2000. "Rewarding Sequential Innovators: Prizes, Patents and Buyouts," Papers, Centro de Estudios Monetarios Y Financieros- 0012, Centro de Estudios Monetarios Y Financieros-.
    6. Farrell, Joseph & Shapiro, Carl, 2007. "How Strong Are Weak Patents?," Competition Policy Center, Working Paper Series, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley qt8vg425vj, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
    7. Nancy T. Gallini, 1992. "Patent Policy and Costly Imitation," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 52-63, Spring.
    8. Klemperer, Paul, 1990. "How Broad Should the Scope of Patent Protection Be?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 392, C.E.P.R. Discussion Papers.
    9. Lemley, Mark A & Shapiro, Carl, 2007. "Patent Hold-Up and Royalty Stacking," Competition Policy Center, Working Paper Series, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley qt8638s257, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
    10. Kitch, Edmund W, 1977. "The Nature and Function of the Patent System," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 20(2), pages 265-90, October.
    11. James Anton & Hillary Greene & Dennis Yao, 2006. "Policy Implications of Weak Patent Rights," NBER Chapters, in: Innovation Policy and the Economy, Volume 6, pages 1-26 National Bureau of Economic Research, Inc.
    12. Emeric Henry, 2010. "Runner-up patents: is monopoly inevitable?," Sciences Po publications info:hdl:2441/c8dmi8nm4pd, Sciences Po.
    13. James J. Anton & Dennis A. Yao, 2004. "Little Patents and Big Secrets: Managing Intellectual Property," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 1-22, Spring.
    14. Pankaj Tandon, 1983. "Rivalry and the Excessive Allocation of Resources to Research," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 14(1), pages 152-165, Spring.
    15. repec:reg:wpaper:235 is not listed on IDEAS
    16. Tandon, Pankaj, 1982. "Optimal Patents with Compulsory Licensing," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(3), pages 470-86, June.
    17. Mansfield, Edwin, et al, 1977. "Social and Private Rates of Return from Industrial Innovations," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 91(2), pages 221-40, May.
    18. Stuart Graham & David Mowrey, 2004. "Submarines in software? continuations in US software patenting in the 1980s and 1990s," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 13(5), pages 443-456.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Krueger to CEA
      by Adam Ozimek in Modeled Behavior on 2011-08-29 11:35:20
    2. “Patent Reform: Aligning Reward and Contribution,” C. Shapiro (2007)
      by afinetheorem in A Fine Theorem on 2012-06-01 04:01:16
    3. “Patent Reform: Aligning Reward and Contribution,” C. Shapiro (2007)
      by afinetheorem in A Fine Theorem on 2012-06-01 04:01:16
    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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    Cited by:
    1. Zhang, Tianle, 2009. "Patenting in the Shadow of Independent Discoveries by Rivals," MPRA Paper 32917, University Library of Munich, Germany, revised 2011.
    2. Giovanni Dosi & Joseph Stiglitz, 2013. "The Role of Intellectual Property Rights in the Development Process, with Some Lessons from Developed Countries: An Introduction," LEM Papers Series, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy 2013/23, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    3. Lakdawalla, Darius & Sood, Neeraj, 2009. "Innovation and the welfare effects of public drug insurance," Journal of Public Economics, Elsevier, Elsevier, vol. 93(3-4), pages 541-548, April.
    4. Heisey, Paul W. & King, John L. & Day-Rubenstein, Kelly A. & Bucks, Dale A. & Welsh, Rick, 2010. "Assessing the Benefits of Public Research Within an Economic Framework: The Case of USDA's Agricultural Research Service," Economic Research Report, United States Department of Agriculture, Economic Research Service 94852, United States Department of Agriculture, Economic Research Service.
    5. Michele Boldrin & David K. Levine, 2012. "The case against patents," Working Papers, Federal Reserve Bank of St. Louis 2012-035, Federal Reserve Bank of St. Louis.
    6. Francesco Bogliacino & Alberto José Naranjo Ramos, 2008. "Optimal intellectual property rights protection: the case of Colombia," Economics Bulletin, AccessEcon, vol. 15(20), pages 1-15.
    7. Darius Lakdawalla & Neeraj Sood, 2007. "The Welfare Effects of Public Drug Insurance," NBER Working Papers 13501, National Bureau of Economic Research, Inc.
    8. Michele Boldrin & David K. Levine, 2013. "The Case against Patents," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 27(1), pages 3-22, Winter.
    9. Michele Boldrin & David K Levine, 2012. "The Case Against Patents," Levine's Working Paper Archive 786969000000000465, David K. Levine.

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