The Great Patent Grab

Abstract

From the late 1930s through the 1970s, the U.S. innovation economy operated under a weak property rights regime. Courts and regulators raised obstacles to patent enforcement and expansively interpreted antitrust constraints on patent licensing. This patent-skeptical climate was illustrated by a sequence of antitrust enforcement actions that resulted in the compulsory licensing of the patent portfolios held by some of the largest U.S. firms. Concurrently, the federal government instituted an implicit compulsory licensing regime through the infusion of R&D funding into the private sector, accompanied by legal constraints on firms’ control over technology developed using those funds. The U.S. economy exhibited robust innovation for a substantial but limited period, followed by a noticeable slowdown commencing in the mid-1960s as government funding declined. Contrary to expectations, reducing the force of patent protections did not appear to lower entry barriers or enhance competitive conditions. To the contrary: R&D investment was concentrated among a small group of large firms that received extensive government funding, market concentration did not decline, and there was little turnover in market leadership. Additionally, the weak-IP regime may have skewed organizational structures by favoring large firms that had the greatest access to government funding and could monetize R&D investment through integrated production and distribution structures. This weak-IP policy experiment suggests that the current revival of weak-IP policies among U.S. courts, legislators and regulators is likely to advantage, rather than challenge, incumbents in technology markets.

Keywords: innovation policy, patents, antitrust, competition policy, R&D policy, compulsory licensing

JEL Classification: K00, K21, L22, L40, N92, O32, O34