Technological Innovation and Intellectual Property

Patents are often discussed in a mythical world where a single inventor obtains the only patent on a product. This newsletter issue explores the more complex worlds of software, semiconductors and biotech where each product may involve hundreds of patents. This complexity gives rise to a number of related problems often referred to as “patent thickets.”
Strategic Patenting

One problem arises when competing firms potentially infringe each other’s patents. James Bessen argues that when competing firms aggressively build large patent portfolios, incentives to perform R&D may be reduced. However, high patentability standards may correct this problem.
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Evidence of strategic patenting is found with software patents by James Bessen and Robert M. Hunt. Firms in some industries have acquired large numbers of software patents and the investment these firms make in R&D appears to have declined, relatively, rather than to have increased.
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Another problem with patent thickets, called the “anti-commons” by Michael Heller and Rebecca Eisenberg, occurs when firms have to negotiate with many owners to obtain needed technologies. Transaction costs may inhibit firms from using innovative technologies. Rosemarie Ziedonis finds empirical evidence of the effects of fragmented ownership in the semiconductor industry.
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John Walsh, Wesley Cohen and Ashish Arora report survey evidence on the extent to which licensing has restricted access to research tools needed for biomedical research. They report that access to research tools has not been a problem in some areas of biotech because researchers have found “working solutions” around the anti-commons. But this is partly because many university researchers have mistakenly assumed that they are exempt from patent infringement.
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Rebecca Eisenberg and Arti Rai propose a modest policy change that may alleviate some of the problems of access to research tools. Currently, the Bayh-Dole act gives universities control over how research results are patented and licensed. But the universities do not necessarily act in the public interest. Eisenberg and Rai suggest that the agencies that fund the research should have more say over licensing terms.
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Oren Bar-Gill and Gideon Parchomovsky point out a mechanism that may help some anti-commons problems. When innovation is cumulative, some researchers may prefer to publish rather than patent some of their findings. This is because follow-on inventors will then have greater incentives to improve the technology, possibly enhancing the profits on the original invention. Bar-Gill and Parchomovsky suggest policy changes to encourage publication.
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