Merges Nelson (1990) - On The Complex Economics Of Patent Scope

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Reference

• Merges, Robert P and Nelson, Richard R (1990), "On the complex economics of patent scope", Columbia Law Review, pp.839--916

@article{merges1990complex,
  title={On the complex economics of patent scope},
  author={Merges, Robert P and Nelson, Richard R},
  journal={Columbia Law Review},
  pages={839--916},
  year={1990},
  abstract={The economic significance of a patent depends on its scope: the broader the scope, the larger the number of competing products and processes that will infringe the patent. Many theoretical papers have tried to assess the effects of fine tuning various aspects of the patent system to make it more efficient.' But only a few have focussed on patent scope, even though scope decisions are subject to far more discretion than most of the aspects more intensively studied. Furthermore, most theoretical writing on patents is directed toward issues that as a practical matter are considered largely settled. For example, several economists have explored the question of optimal patent duration. Their work did have a direct impact on the decision to extend patent terms on pharmaceuticals to compensate for regulatory lag. But despite the scholarly attention to patent duration, the term of most patents remains fixed at seventeen years. Likewise, there has been considerable debate over the years on the merits of compulsory licensing of patents under some circumstances, yet the intellectual property community has repeatedly rejected the idea. Thus, while the literature continues to generate interesting questions about bedrock assumptions and practices, it has little bearing on the everyday operations of the patent system. This Article is an attempt to redress this deficiency by analyzing the economic effects of patent scope.},
  discipline={Law},
  research_type={Discussion},
  industry={All, Electrical Lighting, Automobiles and Airplanes, Radio, Semiconductors and Computers, Chemicals, Pharmaceuticals},
  thicket_stance={},
  thicket_stance_extract={},
  thicket_def={},
  thicket_def_extract={},  
  tags={},
  filename={Merges Nelson (1990) - On The Complex Economics Of Patent Scope.pdf}
}

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Abstract

The economic significance of a patent depends on its scope: the broader the scope, the larger the number of competing products and processes that will infringe the patent. Many theoretical papers have tried to assess the effects of fine tuning various aspects of the patent system to make it more efficient.' But only a few have focussed on patent scope, even though scope decisions are subject to far more discretion than most of the aspects more intensively studied. Furthermore, most theoretical writing on patents is directed toward issues that as a practical matter are considered largely settled. For example, several economists have explored the question of optimal patent duration. Their work did have a direct impact on the decision to extend patent terms on pharmaceuticals to compensate for regulatory lag. But despite the scholarly attention to patent duration, the term of most patents remains fixed at seventeen years. Likewise, there has been considerable debate over the years on the merits of compulsory licensing of patents under some circumstances, yet the intellectual property community has repeatedly rejected the idea. Thus, while the literature continues to generate interesting questions about bedrock assumptions and practices, it has little bearing on the everyday operations of the patent system. This Article is an attempt to redress this deficiency by analyzing the economic effects of patent scope.

Review

Definition of patent thicket

Paper discusses blockages in industry production as a result of firms’ strategic use of patents.

Legal Discussion

The paper considers the policy implications of broader patent scope, mostly focusing on U.S. patent policy, but also considering European policies.

• The granting of patents of broad scope to an initial "pioneering" investor does not necessarily lead to more effective development of new technology.
• Optimal scope depends on industry characteristics including:
  • The relationship between initial and subsequent technical advances in the industry;
  • The licensing behavior of the firms in the industry.
• There are risks to issuing patents with broad scope.

"There is therefore no guarantee that pooling, cross licensing, or consolidation will always emerge to break an industry impasse. And without these solutions there is nothing to mitigate the effect of broad basic patents in cumulative technology industries."

Social Welfare Consequences

"Holders of broad patents would be operating as tollkeepers, not coordinators, and the subsequent development of prospects would proceed in spite of, or at least in indifference to, the broad patent. While the ability to charge a toll may add to the incentives facing an inventor, it does not ensure more efficient development."

Policy Advocated in Paper

• A broad scope for an initial pioneering patent does not necessarily encourage more technological discoveries and often leads to more sluggish growth in the industry.

"Without extensively reducing the pioneer's incentives, the law should attempt at the margin to favor a competitive environment for improvements, rather than an environment dominated by the pioneer firm."