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Are Patents used to Suppress Useful Technology?

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  • Howells, John

    ()
    (Department of Organisation and Management, Aarhus School of Business)

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    Abstract

    This article examines the evidence behind claims that innovation is hindered or blocked (termed technology suppression) by corporations’ use of patents. In other words, are there ways in which the exploitation of the exclusive development right of the patent can be shown to retard the process of innovation, other than in the trivial sense of excluding third parties from the right to develop the technology covered by the patent? There are many references to this possibility in the management, economic and legal literatures, but two papers stand out for grounding their claims of corporate suppression of innovation in the historical record (Dunford 1987; Merges and Nelson 1990). Historical writing is the appropriate form of evidence bearing on how companies have made use of their patents, but this paper shows that in Dunford and Merges and Nelson’s writing the historical evidence has been misinterpreted as providing evidence of technology suppression. What it really reveals are a variety of practical problems in the administration of the patents system as a system of development prospects. In the first sections of this paper the ground is prepared by a brief review of the nature of property rights and the changing view of the function of the patent system in the literature. This argues that the development prospect function of patents must be considered a feature of significant patent development. Then follows a detailed reexamination of the claims for technology suppression in the commonly cited historical cases. These are organised to cover the major ‘development scenarios’ involving: ‘pioneer’, or platform technology patents; multiple, necessary, but independently held patents (eg. radio); the hundreds of minor patents in the so-called ‘patent thicket’.2 The empirical reanalysis confirms that most claims of deliberate corporate technology suppression are the product of a misinterpretation of the evidence. The interpretation that patents have been used to retard technology development is found to have been promoted by a number of features of the literature; 1) the widespread belief, especially amongst economic analysts, that a patent is a form of economic monopoly 2) basic features of property law most pertinent to the function of patents have been forgotten within the contemporary legal literature 3) some of the historical accounts themselves are confused in their use of the term ‘competition’ and in their understanding of patents as property 4) the longstanding, hostile US anti-trust treatment of patents, itself a product of the assumption that patents are conducive to the formation of economic monopoly. Merges and Nelson argue that the cases of radio, the Selden patent, Edison’s carbon filament patent and the Wright brothers’ warped wing patent illustrate the general problem that awarded patent scope tends to be excessively broad. In contradiction to their position, it is shown here that these cases illustrate a range of idiosyncratic problems in the administration of the patent system that generated unusually severe conflicts between awarded scope and technology development. The general problem is not an excessive award of ‘broad scope’, but the ability of Patent Offices and courts to maintain the patent institution as an effective system of development prospects. In particular problem cases, one must consider the reasons why the patent failed to act as a proper development prospect and devise a tailored policy solution with the object of retaining the development prospect function as much as possible. This revision therefore reinforces an understanding of the patent system as a system of property rights that in principle, and usually in practice, is an effective social device to aid the exploration and exploitation of novel technical ideas (inventions).

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    Bibliographic Info

    Paper provided by University of Aarhus, Aarhus School of Business, Department of Management in its series Working Papers with number 2005-10.

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    Length: 60 pages
    Date of creation: 01 Nov 2005
    Date of revision:
    Handle: RePEc:hhb:aardom:2005_010

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    Postal: The Aarhus School of Business, Fuglesangs Allé 4, DK-8210 Aarhus V, Denmark
    Phone: +45 89 48 66 88
    Fax: + 45 86 15 01 88
    Web page: http://www.asb.dk/about/departments/man.aspx
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    References

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    1. Kingston, William, 2001. "Innovation needs patents reform," Research Policy, Elsevier, vol. 30(3), pages 403-423, March.
    2. Daniel H. Cole & Peter Z. Grossman, 2002. "The Meaning of Property Rights: Law versus Economics?," Land Economics, University of Wisconsin Press, vol. 78(3), pages 317-330.
    3. Demsetz, Harold, 1969. "Information and Efficiency: Another Viewpoint," Journal of Law and Economics, University of Chicago Press, vol. 12(1), pages 1-22, April.
    4. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
    5. Merges, Robert P. & Nelson, Richard R., 1994. "On limiting or encouraging rivalry in technical progress: The effect of patent scope decisions," Journal of Economic Behavior & Organization, Elsevier, vol. 25(1), pages 1-24, September.
    6. Suzanne Scotchmer, 1991. "Standing on the Shoulders of Giants: Cumulative Research and the Patent Law," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 29-41, Winter.
    7. Kitch, Edmund W, 1980. "Patents, Prospects, and Economic Surplus: A Reply," Journal of Law and Economics, University of Chicago Press, vol. 23(1), pages 205-07, April.
    8. Bittlingmayer, George, 1988. "Property Rights, Progress, and the Aircraft Patent Agreement," Journal of Law and Economics, University of Chicago Press, vol. 31(1), pages 227-48, April.
    9. Kitch, Edmund W, 1977. "The Nature and Function of the Patent System," Journal of Law and Economics, University of Chicago Press, vol. 20(2), pages 265-90, October.
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