Does 'Strategic Patenting' Threaten Innovation? And What Could Happen If it Did

Abstract:     
Recent buyouts of Nortel’s patent portfolios by a consortium including Microsoft, Apple and Sony and Motorola Mobility’s by Google have focused attention on the role of intellectual property (IP) in business strategies.

IP changed a lot these last fifteen years. New patent-eligible subject matters (biotechnology, software) and regulatory developments in the United States have since the mid-80s led to a rapid growth of patenting, to a fast raise of patents’s value but also to the deterioration of their average quality. It also led to the massive use of Strategic Patenting by firms. These developments contributed to the rise of the prices of intangible assets and goodwill that represent today 80% of the value of the top S&P 500. Globalization, network organizations and generalized subcontracting can explain part of an evolution that could have a significant impact on the pace and direction of innovation.

These changes create barriers to new entrants, divert R & D budgets from research and bring major uncertainty to new entrants who never know whether they infringe a patent or not. Universities that file patents may neglect basic research while firms that indulge in strategic patenting spend an increasing proportion of their R&D effort in legal expenses and defensive strategies. Last but not least, these changes could create dangerous speculative bubbles. In short, they could slow the pace of innovation and harm those industries that innovate the most.

To counter these dangers, economists recommend the establishment of more efficient markets for patents and licences. In their views, the Silicon Valley could be the center of this market, since that is where operate most specialized operators, brokers and intermediaries. But is it the solution? Can we build an efficient market with intangible assets that cannot be properly priced without inviting speculation?

These proposals to establish a market are in line with the standard economic theory that explains that the protection granted to the inventor is an incentive to invest in the search of new processes. For its advocates, more patents means more innovation. But this view is regularly disputed by entrepreneurs who do not care to apply for patents (too expensive, too time consuming) and by economists and sociologists who insist instead on the role of information flows from one entrepreneur to the other. The advocates of an efficient patent market forget that overprotecting IP is not the only solution to promote innovation.

They also forget that this market as we know it today was initially created by changes in its regulations in the US. It is the governments that define and give ownership rights to intangible assets, patents or trademarks. Regulations change from one country to the other. And what is good for America is not necessarily good for others. European and Asian governments could look at other ways to stimulate innovation. Rather than move towards the imitation of the American model, they should remember that there can be no progress without a free flow of ideas.

Number of Pages in PDF File: 21

Keywords: innovation, patents, goodwill, property rights

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