Quantifying the Cost of Substandard Patents: Some Preliminary Evidence

Phoenix Center Policy Paper No. 30

31 Pages Posted: 12 Sep 2007

See all articles by George S. Ford

George S. Ford

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Thomas Koutsky

USAID Global Development Lab

Lawrence J. Spiwak

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Multiple version iconThere are 2 versions of this paper

Date Written: September 2007

Abstract

The purpose of patent policy is to balance the incentive to invent against the ability of the economy to utilize and incorporate new inventions and innovations. Substandard patents that upset this balance impose deadweight losses and other costs on the economy. In this Policy Paper, we examine some of the deadweight losses that result from granting substandard patents in the United States. Under plausible assumptions, we find that the economic losses resulting from the grant of substandard patents can reach $21 billion per year by deterring valid research with an additional deadweight loss from litigation and administrative costs of $4.5 billion annually. This brings the total deadweight loss created by our "dented" patent system to be at least $25.5 billion annually. These estimates may be viewed as conservative because they do not take into account other economic costs from our existing patent system, such as the consumer welfare losses from granting monopoly rents to patent holders that have not, in the end, invented a novel product, or the full social value of the innovations lost.

Keywords: patents, substandard patents, loose patents

JEL Classification: K10, K29, L52, L86, L98, O31, O32, O33, O34, O57

Suggested Citation

Ford, George S. and Koutsky, Thomas M. and Spiwak, Lawrence J., Quantifying the Cost of Substandard Patents: Some Preliminary Evidence (September 2007). Phoenix Center Policy Paper No. 30, Available at SSRN: https://ssrn.com/abstract=1012933 or http://dx.doi.org/10.2139/ssrn.1012933

George S. Ford

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

5335 Wisconsin Avenue, NW
Suite 440
Washington, DC 20015
United States

Thomas M. Koutsky

USAID Global Development Lab ( email )

1300 Pennsylvania Avenue NW
Washington, DC 20577
United States

Lawrence J. Spiwak (Contact Author)

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

5335 Wisconsin Avenue, NW
Suite 440
Washington, DC 20015
United States
202-274-0235 (Phone)
202-318-4909 (Fax)

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