Regulatory Monopoly and Differential Pricing in the Market for Patents

Abstract

Patents are limited-term monopolies awarded to inventors to incentivize innovation. But there is another monopoly that has been largely overlooked at the heart of patent law: the monopoly of the U.S. Patent and Trademark Office (PTO) over the granting of patents. The present Article addresses this topic by introducing the broader notion of a regulatory monopoly, where a single governmental actor has the power to set prices in a regulatory area.

The Article explains how regulatory monopolists like the PTO could enhance social welfare via differential pricing — by charging regulated entities differing fees based on their willingness and ability to pay. In particular, the Article shows how the PTO could increase its revenues and promote innovation by charging different patent “prices” for inventions in different industries. Such pricing could also be used to tailor effective patent term across industries, an emergent goal for many patent scholars.

The Article then applies the author’s recent empirical research to generate potential differential patent price structures. This research takes advantage of a natural experiment — a change in patent term rules due to enactment of the TRIPS agreement in 1995 — to measure the relative importance of patent protection across different industries. The Article concludes by discussing how recent patent reform (the America Invents Act of 2011) provides a legal basis for the PTO to conduct differential pricing.

Keywords: patent law, innovation, regulatory monopoly, differential pricing, price discrimination, maintenance fees, America Invents Act, PTO, fee setting

JEL Classification: K00, O31