Technology Economics: Innovation, Licensing, and Antitrust

Abstract

Public policy toward innovation faces a trade-off: Increasing the compensation of successful inventors increases dynamic efficiency by spurring technological progress, but it decreases static efficiency by enlarging a wedge between price and marginal cost. In making this trade-off, public policy is guided by two insights—economic growth is the prime driver of social welfare gains, and technological progress is the prime driver of economic growth. Patent and copyright law, therefore, were designed to help inventors and authors appropriate a significant share of the value of their inventions and writings. Antitrust law neither revokes nor restricts any right granted by patent law, and antitrust law can contribute little in resolving disputes arising from commitments to license on FRAND terms.

Economic theory and empirical research into innovation and the patent system reveal a complex and varied landscape. Two robust conclusions are that too little is invested in innovation and that both the innovation process and the role of patents in the process vary greatly across industries and inventions. Depending on the precise question posed, theory predicts that monopoly can enhance or retard innovation, and data generally support the hypothesis that both monopolies and unconcentrated markets are relatively inhospitable to innovation. Although patents are critical to innovation in the pharmaceutical and chemical industries, they are unimportant in many industries, and patent protection generally has been found to have no effect on the pace of innovation.