Shared Rights and Technological Progress

43 Pages Posted: 24 Jul 2012

See all articles by Matthew F. Mitchell

Matthew F. Mitchell

Rotman School of Management

Yuzhe Zhang

Texas A&M University

Date Written: May 18, 2012

Abstract

We study how best to reward innovators whose work builds on earlier innovations. Incentives to innovate are obtained by offering innovators the opportunity to profit from their innovations. Since innovations compete, awarding rights to one innovator reduces the value of the rights to prior innovators. We show that the optimal allocation involves shared rights, where more than one innovator is promised a share of profits from a given innovation. We interpret such allocations in three ways: as patents that infringe on prior art, as licensing through an optimally designed evergrowing patent pool, and as randomization through litigation. We contrast the rate of technological progress under the optimal allocation with the outcome if sharing is prohibitively costly, and therefore must be avoided. Avoiding sharing initially slows progress, and leads to a more variable rate of technological progress.

Keywords: cumulative innovation, patent, licensing, patent pool, litigation

JEL Classification: D43, D82, L53, O31, O34

Suggested Citation

Mitchell, Matthew F. and Zhang, Yuzhe, Shared Rights and Technological Progress (May 18, 2012). Rotman School of Management Working Paper No. 2116734, Available at SSRN: https://ssrn.com/abstract=2116734 or http://dx.doi.org/10.2139/ssrn.2116734

Matthew F. Mitchell

Rotman School of Management ( email )

Toronto, Ontario M5S 3E6
Canada

Yuzhe Zhang (Contact Author)

Texas A&M University ( email )

Langford Building A
798 Ross St.
College Station, TX 77843-3137
United States

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