Perfecting Patent Prizes

Abstract

A number of commentators in recent years have suggested permitting holders of intellectual property rights to give up these rights in exchange for cash prizes from the government. In this Article, Professor Abramowicz shows that each of the proposals has significant flaws that would make implementation impractical and argues that no single perfect formula or algorithm for determining the size of prizes exists. A prize system is nonetheless worth pursuing because it could increase social welfare significantly by eliminating deadweight loss. Professor Abramowicz recommends a relatively simple approach that would complement rather than replace the patent system. The proposal is to establish an agency to distribute a fund that would be used to reward corporate efforts to reduce the monopoly effects of patent rights. As long as there is a substantial delay between the activities reducing deadweight loss and the granting of prizes, and as long as the rights to future prizes are tradable, granting of wide agency discretion has significant advantages and few drawbacks. Even assuming the agency is likely to do a poor job of distributing prizes, the system will be efficient if no biases in granting prizes are predictable. After addressing a variety of issues concerning the design of a prize system, Professor Abramowicz offers several potential applications for patent, copyright, and beyond.