56 Pages Posted: 22 Nov 2002
Courts and commentators often treat intellectual property as if the private value of the rights stemmed entirely from the control legal rules conferred over the protected subject matter. While the literature has devoted an enormous amount of time, paper, and ink to the discussion of whether or not legal rules grant the optimal amount of exclusivity, it has not considered whether it has been examining all the functions of patents. This Article provides a new general framework for analyzing the function and effect of intellectual property rules. Rather than focusing on patents as a mechanism for privatizing information, this Article instead frames patents as a means of credibly publicizing information. Patents can reduce informational asymmetries between patentees and observers. Under some circumstances, the informational function of patents may be more valuable to the rights-holder than the substance of the rights. The Article presents a model of patents as a signaling mechanism and considers the multiple equilibria that could result from using patents to convey information. If an easily measurable firm attribute such as patent counts is positively correlated with other less readily measurable firm attributes such as knowledge capital, then patent counts can be used as a means of conveying information about these other attributes. Knowing this, firms may choose to obtain and use a portfolio of patent rights to signal information about themselves that would be more expensive to do through other means. Alternatively, firms can use the patent document itself to convey information that would not be as credible when revealed in other contexts. Patent signals can be ambiguous, however, reducing information costs along some margins but raising them along others. The Article concludes by exploring the efficiency implications of patents as informational mechanisms.
Suggested Citation: Suggested Citation