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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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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
Date of revision:
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. Nancy T. Gallini, 1992. "Patent Policy and Costly Imitation," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 52-63, Spring.
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  11. Gilbert, R. & Shapiro, C., 1988. "Optimal Patent Length And Breadth," Papers 28, Princeton, Woodrow Wilson School - Discussion Paper.
  12. 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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  16. Farrell, Joseph & Shapiro, Carl, 2007. "How Strong Are Weak Patents?," Competition Policy Center, Working Paper Series qt8vg425vj, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  17. Tandon, Pankaj, 1982. "Optimal Patents with Compulsory Licensing," Journal of Political Economy, University of Chicago Press, vol. 90(3), pages 470-86, June.
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