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Abstract:
How could such industries as software, semiconductors, and computers have been so innovative despite historically weak patent protection? We argue that if innovation is both sequential and complementary--as it certainly has been in those industries--competition can increase firms' future profits thus offsetting short-term dissipation of rents. A simple model also shows that in such a dynamic industry, patent protection may reduce overall innovation and social welfare. The natural experiment that occurred when patent protection was extended to software in the 1980?s provides a test of this model. Standard arguments would predict that R&D intensity and productivity should have increased among patenting firms. Consistent with our model, however, these increases did not occur. Other evidence supporting our model includes a distinctive pattern of cross-licensing in these industries and a positive relationship between rates of innovation and firm entry.

Abstract:
This paper estimates the total cost of patent litigation to alleged infringers. We use a large sample of stock market event studies around the date of lawsuit filings for US public firms from 1984-99. We find that the total costs of litigation are much greater than legal fees and costs are large even for lawsuits that settle. Lawsuits cost alleged infringers about $28.7 million ($92) in the mean and $2.9 million in the median. Moreover, infringement risk rose sharply during the late 1990s to over 14% of R&D spending. Small firms have lower risk relative to R&D.

patent, litigation, litigation cost, property rights

Abstract:
Open source software, developed by volunteers, appears counter to the conventional wisdom that private provision of public goods is socially more efficient. But complexity makes a difference. Under standard models, development contracts for specialized software may be difficult to write and ownership rights do not necessarily elicit socially optimal effort. I consider three mechanisms that improve the likelihood that firms can obtain the software they need: pre-packaged software, Application Program Interfaces (APIs) and Free/Open Source software (FOSS). I show that with complex software, some firms will choose to participate in FOSS over both "make or buy" and this increases social welfare. In general, FOSS complements proprietary provision, rather than replacing it. Pre-packaged software can coexist in the marketplace with FOSS: pre-packaged software addresses common uses with limited feature sets, while firms with specialized, more complex needs use FOSS.

Software, Contracting, Information Goods, Complexity

Abstract:
This paper uses renewal data to estimate the value of U.S. patents, controlling for patent and owner characteristics. Estimates of U.S. patent value are substantially larger than estimates for European patents, however, the ratio of U.S. patent value to R&D for firms is only about 3%. Patents issued to small patentees are much less valuable than those issued to large corporations, perhaps reflecting imperfect markets for technology. Litigated patents are more valuable, as are highly cited patents. However, patent citations explain little variance in value, suggesting limits to their use as a measure of patent quality.

Technology, patents, innovation, patent value, markets for technology

Abstract:
This paper provides the first look at patent litigation hazards for public firms during the 80s and 90s. Consistent with our model, litigation is more likely when prospective defendants spend more on R&D, when prospective plaintiffs acquire more patents and when firms are larger and technologically close. Public firms face dramatically increased hazards of litigation as plaintiffs and even more rapidly increasing hazards as defendants, especially for small public firms. The increase cannot be explained by patenting rates, R&D, firm value or industry composition. Legal changes are the most likely explanation.

patent, litigation, settlement, licensing, property rights

Abstract:
Software patents have grown rapidly in number and now comprise 15% of all patents. They are acquired primarily by large manufacturing firms in industries known for strategic patenting; only 5% belong to software publishers. The very large increase in software patent propensity over time is not adequately explained by changes in R&D investments, employment of computer programmers, or productivity growth. The residual increase in software patent propensity is consistent with a sizeable increase in the cost effectiveness of software patents during the 1990s, perhaps arising from changes in the application of patent law to computer software.

Abstract:
U.S. legal changes have made it easier to obtain patents on inventions that use software. Software patents have grown rapidly and now comprise 15 percent of all patents. They are acquired primarily by large manufacturing firms in industries known for strategic patenting; only 5 percent belong to software publishers. The very large increase in software patent propensity over time is not adequately explained by changes in R&D investments, employment of computer programmers, or productivity growth. The residual increase in patent propensity is consistent with a sizeable rise in the cost effectiveness of software patents during the 1990s. We find evidence that software patents substitute for R&D at the firm level; they are associated with lower R&D intensity. This result occurs primarily in industries known for strategic patenting and is difficult to reconcile with the traditional incentive theory of patents.

Software Patents Innovation Technological Change

Abstract:
Patent race models assume that an innovator wins the only patent covering a product. But when technologies are complex, this property right is defective: ownership of a product's technology is shared, not exclusive. In that case I show that if patent standards are low, firms build "thickets" of patents, especially incumbent firms in mature industries. When they assert these patents, innovators are forced to share rents under cross-licenses, making R&D incentives sub-optimal. On the other hand, when lead time advantages are significant and patent standards are high, firms pursue strategies of "mutual non-aggression." Then R&D incentives are stronger, even optimal.

patents, technological innovation, intellectual property

Abstract:
Do patents provide critical incentives to encourage investment in innovation? Or, instead, do patents impose legal risks and burdens on innovators that discourage innovation, as some critics now claim? This paper reviews empirical economic evidence on how well patents perform as a property system.

patent, property rights, research and development

Abstract:
The value of patent rents is an important quantity for policy analysis. However, estimates in the literature based on patent renewals might be understated. Market value regressions could provide validation, but they have not had clear theoretical foundations for estimating patent rents. I develop a simple model to make upper bound estimates of patent rents using regressions on Tobin's Q. I test this on a sample of US firms and find it robust to a variety of considerations. My estimates correspond well with estimates based on patentee behavior outside the pharmaceutical industry, but renewal estimates might be understated for pharmaceuticals.

technology, patents, innovation, patent value, firm value

Abstract:
The role of historical accident in technology selection has been difficult to measure. This paper develops a quantifiable model for a basic and widely applicable form of path dependence: the random walk. This real options model is applied to the transition in British cotton spinning at the beginning of the century.

In contrast to neoclassical models based on simple net present value calculations, when investment is irreversible, firms may choose to wait rather than to invest in a superior new technology. The magnitude and effect of this option to wait can be calculated. British spinning firms waited significantly before adopting superior technology, in line with the model. This failure to adopt (immediately) a superior technology can be described as ?lock-in? as in the path dependence literature. But this lock-in need not be permanent.

Moreover, lock-in to an inferior technology does not generally imply any market failure or any benefit to intervention. Path dependence may, however, exacerbate existing market distortions.

Abstract:
This paper measures plant-level productivity gains associated with learning curves across the entire manufacturing sector. We measure these gains at plant startups and also after major employment changes. We find: 1) The gains are strongly associated with a variety of human capital measures implying that learning-by-doing is largely a firm-specific human capital investment. 2) This implicit investment is large; many plants invest as much in learning-by-doing as they invest in physical capital and much more than they invest in formal job training. 3) This investment differs persistently over industries and is higher with greater R&D. 4) Consistent with a learning-by-doing interpretation, the human capital investment is much larger following employment decreases than increases. We conclude that learning-by-doing is a major factor in wage determination, technical progress and asymmetric employment adjustment costs.

Abstract:
This Article reviews empirical patent litigation research to reveal patent policy lessons. First, the Article presents facts about patent litigation. Next, it analyzes the patent premium. Patent litigation research reveals little about the magnitude of the patent premium, but the research reveals the strategies firms use to capture the patent premium and the patent policy instruments that determine the patent premium. Next, the Article evaluates the patent prosecution process and notes that making efforts to refine a patent application can affect the value of the patent. The Article then identifies reforms for improving PTO performance. Finally, the Article discusses policy changes that patent litigation research suggests would improve procedural fairness and reduce patent litigation costs.

patent, litigation, settlement, licensing, property rights

Abstract:
When innovation is cumulative, early patentees hold claims against later innovators. Then potential hold-up may cause prospective second stage innovators to forego investing in R&D. It is sometimes argued that ex ante licensing (before R&D) avoids hold-up. This paper explores ex ante licensing when information about development cost is private. In this case, contracts may not be written ex ante. Moreover, the socially optimal division of profit occurs with weak patents and ex post licensing. Empirical evidence on licensing conforms to a model with private information. In some innovative industries, little ex ante licensing occurs, suggesting hold-up remains a problem.

Patents, licensing, innovation, intellectual property

Abstract:
Does the disclosure requirement of the patent system encourage the diffusion of inventions? This paper builds a simple model where firms choose between patents and trade secrecy to protect inventions. Diffusion is not necessarily more likely with a patent system nor is the "market for technology" necessarily greater.

Patents, innovation, diffusion, trade secrecy

Abstract:
Does the disclosure requirement of the patent system encourage the diffusion of inventions? This paper builds a simple model where firms choose between patents and trade secrecy to protect inventions. Diffusion is not necessarily more likely with a patent system nor is the market for technology necessarily greater.

Patents, innovation, diffusion, trade secrecy

Abstract:
Why is it that adopting new technologies takes so long and costs so much? Clearly, firms do not know all the details necessary to implement a complex technology efficiently; learning these details requires extensive search. However, this explanation has a problem: even limited search may be so costly that newly discovered techniques will not be tried. We find that specialization solves this problem. If a complex process is divided into many small components, each searched in parallel, then discoveries are readily tested. Moreover, specialized search can perform surprisingly well even for processes of indefinite complexity. We measure the returns to search at 40 plant startups and find values consistent with specialization. This suggests that organizational factors may strongly influence how firms and nations adopt new technologies.

Abstract:
Do patents behave substantially like property rights in tangible assets, in that they encourage development and innovation? This article notes that historical evidence, cross-country evidence, economic experiments, and estimates of net benefits all indicate that general property rights institutions have a substantial direct effect on economic growth. Conversely, with a few important exceptions like chemicals and pharmaceuticals, empirical evidence indicates that intellectual property rights have at best only a weak and indirect effect on economic growth. Further, it appears that for public firms in most industries today, patents may actually discourage investment in innovation for fear of winding up on the losing side of a patent fight, and routine injunctive relief from patent protection may contribute to this problem.

property, intellectual property, property rights, patent, property law, patent law, Industrial Revolution, economic growth, natural economic experiments, Eastern European economies, Eastern European transition, free-riders, generic drug

Abstract:
'Do Patents Facilitate Financing in the Software Industry?' by Ronald J. Mann contributes empirical evidence to our understanding of how software startups use patents. However, a close examination of the actual empirical findings in this paper points to rather different conclusions than those that Mann draws, namely: few software startups benefit from software patents and patents are not widely used by software firms to obtain venture financing. Indeed, among other things, the paper reports that 80% of venture-financed software startups had no acquired any patents within four years of receiving financing.

Software, Patents, Startups, Innovation, Venture Capital

Abstract:
Were ordinary factory workers unskilled and was technology "de-skilling" during the Industrial Revolution? I measure foregone output to estimate the human capital investments in mule spinners and power loom tenders in ante-bellum Lowell. These investments rivaled those of craft apprentices, suggesting a different view of industrial technology. Accounting for skill, multi-factor productivity growth was negligible, contrary to previous findings. From 1834-55, firms made increasing investments in skill, allowing workers to tend more machines and generating rapid growth of per-capita output. This growing investment was motivated partly by changing factor prices and more by a changing labor supply. Calculations show that firm policy and social conditions, including literacy, influenced the investment in factory skills. When skills are considered, technological change at Lowell appears as a broad social process, dependent as much on innovation in institutions as on invention of machines.

Abstract:
How should the economic performance of property systems be evaluated? Benefit-cost analysis is widely used to evaluate non-market based regulation when prices are not available. Market prices provide better information for property systems, but market prices are not necessarily socially optimal when property rights are imperfect. This paper discusses two practical approaches to evaluating the performance of property systems, one based on an analysis of institutional performance, the other based on measuring incentives. As an illustration, I show how these approaches might be used to evaluate the US patent system.

property, markets, externalities, regulation

Abstract:
A large sample of new plants is studied to reveal detailed adjustment behavior for capital, labor and productivity. Once production has begun, capital adjusts almost as quickly as labor. Overall, capital adjustment is lumpy while labor follows a learning-by-doing model rather than a convex adjustment cost model. Plants are quite heterogeneous, however: convex adjustment costs appear important at small plants, but large plants exhibit lumpy investment and substantial investment in learning-by-doing. A positive association between plant productivity growth and wages (and also the change in wages) corroborates the importance of learning-by-doing. Also, learning-by-doing appears to influence the behavior of large plants subsequent to startup.

Abstract:
How much of the rapid growth in labor productivity in nineteenth century cotton weaving arose from capital-labor substitution and how much from technical change? Using an engineering production function and detailed information on inventions, I find that factor substitution accounts for little growth. However, much of the growth and most of the apparent labor-saving bias arose not from inventions, but from improved labor quality — better workers spent less time monitoring the looms. The inventions themselves were almost technically neutral because innovations in general purpose technologies were capital-saving. Labor quality played a critical role in the persistent association between economic growth and capital deepening in this important sector.

technical change, productivity growth, technical bias, innovation, US manufacturing history, general purpose technologies

Abstract:
In theory, property rights allow markets to achieve Pareto optimal allocations. But the literature on contracting largely ignores what happens when property rights are imperfectly defined and enforced. Although some models include weak enforcement or poorly defined rights or "anticommons," this paper develops a general model that includes all of these possibilities. I find that combinations matter: Policy prescriptions to remedy individual imperfections are sometimes inappropriate under other conditions. For example, stronger penalties for violating rights can decrease Pareto efficiency, contrary to a common view. Also, collective rights organizations, such as patent pools, sometimes worsen problems of overlapping claims.

property, markets, externalities, contract enforcement, regulation

Abstract:
Solow (1957) decomposed labor productivity growth into two components that are independent under Hicks neutrality: input growth and the residual, representing technical change. However, when technical change is Hicks biased, input growth is no longer independent of technical change, leading to ambiguous interpretation. Using Solow's model, I decompose output per worker into globally independent sources and show that technical bias directly contributes to labor productivity growth above what is captured in the Solow residual. This contribution is sometimes large, generating rates of total technical change that substantially exceed the Solow residual, prompting a reinterpretation of some well-known studies.

technical change, productivity growth, technical bias, innovation

Abstract:
A model of patent dispute resolution, which alsoconsiders early stage patent and development investments by both the patentowner and the possible defendant, is presented. The model is comprised of three stages involving an investment firm and aninfringing firm. The three stages of the model are described: 1)stage oneconsists of the investment firmchoosing an investment in patent"refinement"; 2) stage two addresses the investment choices of bothfirms; and 3) stage three describes the four possible outcomes of thesituation. Using the Nash equilibrium to analyze the stages of the model, the solutionsregarding settlement, lawsuit, acquiescence and deterrence are discussed.Profitability of each firm is examined. The implications of the model areanalyzed, including the probability of litigation and the disparity of R&Dspending among industries. The model provides a means of measuring the impact of the patent law changesupon the certainty of patent rights, as well as on profit, developmentinvestment, and patenting behaviors. (AKP)

Patent infringements, Patent law, Patent litigation, Patents, Intellectual property, Licenses, Litigation

Abstract:
When innovation is cumulative, early patentees can hold up later innovators. Under complete information, licensing before R&D avoids holdup. But when development costs are private information, ex ante licensing may only occur in regimes with sub-optimal patent policy.

Patents, licensing, innovation, intellectual property