Finance and Patent Length

Abstract:     
In this paper, I demonstrate the inefficiency of the current and historical patent terms, conduct simulations of an economic model of optimal patent length, and recommend some changes in patent policy based on these findings. First, I sketch the evolution of the current twenty-year patent term and its lack of responsiveness to changes in various financial variables. Unlike patent breadth, patent length has been fixed by legislatures for extended periods of time, even during recent years, when the 1998 State Street decision and it progeny have dramatically expanded patent breadth. Second, I conduct a series of simulations based on a dynamic model of the optimal patent term in order to analyze explicitly the effects of changes in certain financial variables (e.g., interest rates and the structure of patent-related cashflows). I find that the optimal patent term is highly sensitive to changes in the term structure of interest rates and to changes in the timing of cash outflows and inflows related to patents. For example, I find that under certain assumptions a one percent shift in interest rates results in an approximately one-year shift in the optimal patent term. Finally, I propose several alternative regimes under which the patent term could be made to vary in length based on interest rates or other financial variables.

Number of Pages in PDF File: 46

working papers series