Technological Innovation and Intellectual Property

Among the social costs of a patent system are enforcement costs, including the costs of monitoring for possible infringement, and the costs of negotiating with and litigating against possible infringers. These costs may be quite significant and they may also fall disproportionately on individuals and small firms. The first paper summarized in this issue provides the most comprehensive empirical analysis of recent patent litigation. The authors, Jean Lanjouw and Mark Schankerman, look at the rate of litigation, considering the recent surge in patenting, and how litigation and settlement rates vary according to the characteristics of the patents (e.g., firm size).
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It is often assumed that the costs of monitoring for infringement, i.e., examining other firms’ products for possible infringement, do not significantly affect the functioning of the patent system. However, this assumption has never been carefully examined. Now Claude Crampes and Corinne Langinier explore the theoretical implications of such monitoring costs and come to some unexpected conclusions.
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Many people have difficulty understanding this phenomenon in conventional economic terms. David Lancashire provides an explanation with some empirical support.
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Enforcement is not a problem when society provides incentives to innovators by means of rewards rather than patents or other intellectual property rights. There is, in fact, a long history of inventions developed to win rewards. Steven Shavell and Tanguy van Ypersele weigh some of the theoretical benefits of reward systems against the benefits of patent systems.
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Rewards have recently been considered for the development of drugs to treat diseases such as malaria that afflict large numbers of people in many developing countries. Some advocates support rewards because they feel that international patents may actually limit access to drugs in poor countries and, at the same time, fail to provide sufficient incentives to develop new drugs for these markets.

Indeed, one controversial issue is the effect of international patent harmonization (under the World Trade Organization) on the prices of pharmaceuticals in developing countries. And at one pole of that debate is the paper by Richard Rozek and Ruth Berkowitz.
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Another problem affecting drug development is the role of patents on DNA sequences. DNA-based research holds great promise for the development of new treatments, but the complexity of the technology means that patents play a very different role than, say, with simple mechanical inventions. F. M. Scherer combines an analysis of the U.S. DNA sequence patents to date with theoretical considerations to arrive at four general policy recommendations.
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