Shared Rights and Technological Progress
43 Pages Posted: 24 Jul 2012
Date Written: May 18, 2012
Abstract
We study how best to reward innovators whose work builds on earlier innovations. Incentives to innovate are obtained by offering innovators the opportunity to profit from their innovations. Since innovations compete, awarding rights to one innovator reduces the value of the rights to prior innovators. We show that the optimal allocation involves shared rights, where more than one innovator is promised a share of profits from a given innovation. We interpret such allocations in three ways: as patents that infringe on prior art, as licensing through an optimally designed evergrowing patent pool, and as randomization through litigation. We contrast the rate of technological progress under the optimal allocation with the outcome if sharing is prohibitively costly, and therefore must be avoided. Avoiding sharing initially slows progress, and leads to a more variable rate of technological progress.
Keywords: cumulative innovation, patent, licensing, patent pool, litigation
JEL Classification: D43, D82, L53, O31, O34
Suggested Citation: Suggested Citation
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