Robert P. Merges

On the Complex Economics of Patent Scope

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.1 But only a few have focussed on patent scope, 2 even though scope decisions are subject to far more discre-

The Control of Technology Alliances: An Empirical Analysis of the Biotechnology Industry

The authors examine the determinants of control rights in biotechnology alliances through three case studies and a quantitative analysis. P. Aghion and J. Tirole (1994) argue that control rights will be assigned so as to maximize the value of the final output as long as the R&D firm has sufficient financial resources. Consistent with this framework, the allocation of control rights to the R&D firm increases with the firms financial resources. The empirical evidence regarding the relationship between control rights and the stage of the project at the time the alliance is signed is more ambiguous. Copyright 1998 by Blackwell Publishing Ltd

High Technology Entrepreneurs and the Patent System: Results of the 2008 Berkeley Patent Survey

We offer description and analysis of the 2008 Berkeley Patent Survey, summarizing the responses of 1,332 U.S.-based technology startups in the biotechnology, medical device, IT hardware, software, and Internet sectors. We discover that holding patents is more widespread among technology startups than has been previously reported, but that the patterns and drivers of holding patents are industry and context specific. Surprisingly, startup executives report in general that patents are providing relatively weak incentives for core activities in the innovation process. Our analysis uncovers that the drivers of startup patenting are often associated with capturing competitive advantage, and the associated goals of preventing technology copying, securing financing, and enhancing reputation - although again these and other motives depend on firm and industry factors. We also find substantial differences in the roles played by patents for startups in the biotechnology and medical device sectors - where patents are more commonly used and considered important - as compared to those operating in the software and Internet fields - where they are less useful. Interestingly, venture-backed IT hardware startups tend to resemble those in health-related fields in terms of their use of and motives for patenting. We generally find a wide disparity between the patenting behavior of venture-backed technology startups and those that are not funded with venture capital. We also discover that, when choosing not to patent major innovations, startups often cite to cost considerations, although again the motives to forgo patenting differ according to firm and industry characteristics. The respondents to our survey also generally report that checking the patent literature and licensing patents from others is reasonably common, although there too results differ according to the context. Other findings are discussed.

Incentives to Challenge and Defend Patents: Why Litigation Won't Reliably Fix Patent Office Errors and Why Administrative Patent Review Might Help

Given the limits on Patent Office scrutiny of patent applications, one might hope that ex post litigation can fix at least the important errors. Unfortunately, the often grossly skewed incentives to challenge and to defend issued patents make this view too optimistic. Since litigation cannot fix all errors, we urge better USPTO funding and higher standards of initial review, better incentives (not limited to formal duties) for applicants to find and disclose prior art information, and the creation of a cheap and workable administrative post-issue review. We explain why existing administrative reviews are not a workable system, and recommend some features that a new system should have.

Property Rights Theory and the Commons: The Case of Scientific Research

For some time now, commentators in and out of the scientific community have been expressing concern over the direction of scientific research. Cogent critics have labeled it excessively commercial, out of touch with its “pure,” public-spirited roots, and generally too much a creature of its entrepreneurial, self-interested times. In most if not all of this hand-wringing, the scientific communitys growing reliance on intellectual property rights, especially patents, looms large. Indeed, for many the pursuit of patents is emblematic of just what is rotten in the republic of science today.

The economic impact of intellectual property rights: An overview and guide

This paper, adapted from a conference presentation in Venice, links the history of intellectual property protection to two important trends in this field: (1) the ‘shifting baseline’, from a presumption of no property rights and open competition, to the presumption that all intellectual effort deserves the award of a property right; and (2) growing awareness of the ‘political economy’ of these rights, which legislators can create and strengthen with little direct effect on government budgets. The paper also considers a shift in the scholarly emphasis, from the ‘brand question’ of the overall worth of intellectual property to defailed consideration of individual doctrines and rules.

A Transactional View of Property Rights

Author(s): Merges, Robert P | Abstract: Property rights and contract law are two of our most basic legal categories. Many legal scholars describe what makes them different; this Essay describes how they work together to promote economic exchange. Incorporating the insights of both “transaction cost” and “new property rights” economics, it identifies two crucial contributions that property rights make to real-world contracting: (1) precontractual liability, or protection for disclosure of sensitive information in the period leading up to contract formation; and (2) enforcement flexibility after a contract is executed, in the form of many subtle but important advantages that accrue to a contracting party who also holds a property right. This Essay argues that property’s “transactional” role is growing in importance, as the “new economy” ushers in a more transaction-intensive industrial structure featuring greater numbers of smaller, more specialized firms.

One Hundred Years of Solicitude: Intellectual Property Law, 1900-2000

The elaboration of intellectual property law is closely intertwined with new technologies. This Review Essay draws on selected episodes from the past 100 years to illustrate the three typical stages by which the legal system accomodates new technologies: (1) disequilibrium; (2) adaptation and adjustment; and (3) legislative consolidation. The final section of the Article introduces a cautionary contemporary note. As a byproduct of the increasing value of intellectual property, there has recently been a rapid increase in legislative activity, and concomitant lobbying activity. This changing political economy is greatly compressing the traditional three-step process, and may bypass it entirely in some circumstances. As a counterbalance to overzealous legislation, courts may be forced to look to the constitutional foundations of intellectual property as a source of limiting principles.

The Uninvited Guest: Patents on Wall Street

For at least the past twenty-five years, financial services industries have been creating innovative products and services without the help of patents. The 1998 State Street Bank case changed all this, making patents freely available in these industries. Will patents help or hurt financial services innovation in the long run? This article sheds some light on this issue. ; Before the advent of patents, several “appropriability” mechanisms protected financial services innovation: “first mover” advantages, complementary or “cospecific” assets, and trade secrecy. Evidence suggests that, in the immediate post-patent era, financial firms’ first order of business was to protect these traditional appropriability practices. This attitude explains the early push to secure a “prior use rights” defense to protect established firms against patent claims by upstart outsiders. From a historical perspective, this reaction to the “patent threat” tracks that of other industries: in particular, nineteenth-century railroads and the software industry of the 1980s. ; In the end, the author argues, patents are not likely to cause any real and lasting problems. Although patents may increase the costs of interchanging innovative ideas, they may bring some unintended benefits as well—by fostering spin-offs and facilitating entry by start-ups, for example. Like random shocks in the natural world, the new patent regime provides a shakeup that could bring some good but unpredictable consequences.

The Trouble with Trolls: Innovation, Rent-Seeking, and Patent Law Reform

This Article analyzes the secondary market for patent rights. It defines a patent troll as a participant in this market that does not contribute to the social goal the patent system was meant to serve: technological innovation. The legitimate secondary market, in which patent rights are bought and sold in ways that compensate real innovators (and also often involve the transfer of information and/or technology, in addition to the legal right), is distinguished from the more questionable market for the settlement of lawsuits involving weak, outdated or irrelevant patents. The presence of willing buyers and willing sellers does not necessarily imply that social welfare is being served; at times, the legal system must shut down markets when the things being exchanged have no social value — as in the case of blackmail. The Article reviews the prospects for corrective policies to reign in some activities in the current patent system. Political economy considerations make Congress a long shot to fix the problem, which leaves the courts, and in particular the Federal Circuit. Recent caselaw on damages is presented as a case study of a desirable Federal Circuit course correction involving the secondary market for patents. Economically rational valuation techniques applied to the question of appropriate damages for patent infringement can help to undermine the incentives to litigate, and hence the market for, patents on minor features that can be used strategically to demand large damage awards under some readings of damages doctrine.