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Describing Patents as Real Options

Christopher Anthony Cotropia

University of Richmond School of Law

March 13, 2009

Journal of Corporation Law, Vol. 34, p. 1127, 2009

There is a definite economics literature analogizing patents to real options. A patent is like a real option, economists say, because it allows its owner to choose between exclusively commercializing the patented invention sometime during the patent term or foregoing commercialization altogether. The legal literature is a bit behind in using this analogy, with only a handful of scholars exploring the connection.

This Article continues the use of real options in patent law by taking a step back. The Article lays a foundation for future discussions in this area by describing in detail how patents are like real options. Specifically, the Article identifies the particular patent doctrines that make up the common components of a real option - the option price, the exercise price, the expiration date, and the value of the underlying asset. From here, the Article discusses some implications of using real options theory in patent law. Real option analysis allows both patent problems and patent solutions to be examined in terms of macro patent elements - elements defined by the operational components of a real option. Real options theory also facilitates viewing patents the same way industry views research and development projects - as real options. Finally, there is promise in the underlying enterprise - using the concept of real options to articulate a new theory of the patent system.

Number of Pages in PDF File: 23

Keywords: patents, real options

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Date posted: March 15, 2009 ; Last revised: December 5, 2014

Suggested Citation

Cotropia, Christopher Anthony, Describing Patents as Real Options (March 13, 2009). Journal of Corporation Law, Vol. 34, p. 1127, 2009. Available at SSRN: http://ssrn.com/abstract=1359445

Contact Information

Christopher Anthony Cotropia (Contact Author)
University of Richmond School of Law ( email )
28 Westhampton Way
Richmond, VA 23173
United States
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