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Patent Reform: Aligning Reward and Contribution

  • Carl Shapiro

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."

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File URL: http://www.nber.org/papers/w13141.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13141.

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Date of creation: May 2007
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Publication status: published as Patent Reform: Aligning Reward and Contribution , Carl Shapiro. in Innovation Policy and the Economy, Volume 8 , Jaffe, Lerner, and Stern. 2007
Handle: RePEc:nbr:nberwo:13141
Note: LE IO
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  1. Gerard Llobet & Hugo Hopenhayn & Matthew F. Mitchell, 2000. "Rewarding sequential innovators: prizes, patents and buyouts," Staff Report 273, Federal Reserve Bank of Minneapolis.
  2. Gallini, Nancy & Scotchmer, Suzanne, 2001. "Intellectual Property: When Is It the Best Incentive System?," Department of Economics, Working Paper Series qt9wx2c2hz, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. 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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  6. James Bessen & Eric Maskin, 2006. "Sequential Innovation, Patents, and Imitation," Economics Working Papers 0025, Institute for Advanced Study, School of Social Science.
  7. Mansfield, Edwin, et al, 1977. "Social and Private Rates of Return from Industrial Innovations," The Quarterly Journal of Economics, MIT Press, vol. 91(2), pages 221-40, May.
  8. Tandon, Pankaj, 1982. "Optimal Patents with Compulsory Licensing," Journal of Political Economy, University of Chicago Press, vol. 90(3), pages 470-86, June.
  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.
  10. Klemperer, Paul, 1990. "How Broad Should the Scope of Patent Protection Be?," CEPR Discussion Papers 392, C.E.P.R. Discussion Papers.
  11. Emeric Henry, 2010. "Runner-up patents: is monopoly inevitable?," Sciences Po publications info:hdl:2441/c8dmi8nm4pd, Sciences Po.
  12. Richard Gilbert and Carl Shapiro., 1989. "Optimal Patent Length and Breadth," Economics Working Papers 89-102, University of California at Berkeley.
  13. Joseph Farrell & Carl Shapiro, 2008. "How Strong Are Weak Patents?," American Economic Review, American Economic Association, vol. 98(4), pages 1347-69, September.
  14. Lemley, Mark A & Shapiro, Carl, 2007. "Patent Hold-Up and Royalty Stacking," Competition Policy Center, Working Paper Series qt8638s257, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  15. 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.
  16. Pankaj Tandon, 1983. "Rivalry and the Excessive Allocation of Resources to Research," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 152-165, Spring.
  17. 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.
  18. La Manna, Manfredi & Macleod, Ross & de Meza, David, 1989. "The case for permissive patents," European Economic Review, Elsevier, vol. 33(7), pages 1427-1443, September.
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