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Dysfunctions Of The Patent System And Their Effects On Competition

  • David Encaoua

    ()

    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • Thierry Madies

    (CREM - Centre de Recherche en Economie et Management - CNRS : UMR6211 - Université de Rennes 1 - Université de Caen Basse-Normandie, Université de Fribourg - University of Fribourg)

The contemporary tensions between patents and competition no longer reside in the traditional trade-off between the exclusionary right given to an inventor to encourage innovation, and the welfare loss induced by the market power associated to this right. They rather result from three important distortions of the patent system that create conflicts between patents and competition on the product market, the technology market, and the innovation market. The first distortion is related to the existence of dubious or weak patents: too many patents are granted to applications of bad quality according to the patentability criteria. This increases the uncertainty attached to patents, reduces the credibility of the system and calls into question the justification of the patent as a protective mechanism. Second, the configuration of a patent, originally designed in the context of an isolated innovation, is not quite adapted to the context of sequential innovations. While sequential patents requires fine limitations between successive generations of innovations, the strengthening of intellectual property rights, including the extension of the patentable subject matters, opened the door to opportunistic behavior and adversely affected the technological exchanges. Third, the emergence of complex technologies, in which the use of a large number of fragmented patents is necessary to produce a new product, implies the necessity to coordinate the behavior of numerous patent holders. Some entrants in these complex technologies are struck by the imperfect coordinated behavior of these patent holders as illustrated in different settings such as the pooling of complementary patents and the licensing of essential patents by the Standard Setting Organisation members. Very often, patents serve to create ambushes or to capture unjustified rents through excessive license fees, which in turn create barriers to entry for new competitors in the innovation market. Two important consequences of these distortions are derived. First, the resolution of the conflicts cannot rely exclusively on the application of the antitrust law. Second, the distortions lead to a very expensive judicial implementation of the patent system.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00848247.

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Date of creation: 2014
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Publication status: Published, Patent Markets in the Global Knowledge Economy, Cambridge University Press (Ed.), 2014, 125-171
Handle: RePEc:hal:cesptp:halshs-00848247
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00848247
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  1. Bruno van Pottelsberghe, 2010. "The quality factor in patent systems," Working Papers 422, Bruegel.
  2. Anne Layne-Farrar & Gerard Llobet & Jorge Padilla, 2014. "Payments and Participation: The Incentives to Join Cooperative Standard Setting Efforts," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(1), pages 24-49, 03.
  3. Harhoff, Dietmar & Reitzig, Markus, 2002. "Determinants of Opposition Against EPO Patent Grants - The Case of Biotechnology and Pharmaceuticals," CEPR Discussion Papers 3645, C.E.P.R. Discussion Papers.
  4. Langinier, Corinne & Marcoul, Phillipe, 2009. "Search of Prior Art and Revelation of Information by Patent Applicants," Working Papers 2009-21, University of Alberta, Department of Economics.
  5. 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.
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