Patent Thickets, Courts, and the Market for Innovation

Innovation and Economic Growth, Intellectual Property and Patents

Article Snapshot

Author(s)

Alberto Galasso and Mark Schankerman

Source

The RAND Journal of Economics, Vol. 41:3, pp. 472-503, 2010

Summary

This paper considers the extent to which different features of patent thickets can impede or encourage innovation.

Policy Relevance

Reducing the duration of patent lawsuits may be expected to increase innovation and the diffusion of technology.

Main Points

  • Patents are often the subject of legal battles; a common outcome of such battles is a settlement permitting the party that does not own a patent to license the patented technology.

     

    • When litigation takes more time, innovation is costlier and occurs more slowly.
       
  • A patent thicket occurs when patents for different components of a particular technology are owned by many different firms. Packet thickets are thought to impede innovation by making it difficult for other businesses to license the technology for their own products.

     

    • On the other hand, when a patent thicket exists, a single firm's patent may not be valuable enough for that firm to impede a legal settlement ending in the licensing of that patent.
       
  • A mathematical model suggests that settlements should be reached more quickly when the patent rights in a legal suit are more fragmented, as in a patent thicket, and when the outcome of a trial is more certain. This model is supported by real-world evidence:

     

    • The establishment of a single Federal patent court in 1982 made the outcome of patent disputes more certain and reduced patent litigation time by about half a year on average.
       
    • Patent disputes have a shorter duration when the rights to a technology are more fragmented; this positive effect of patent thickets was less pronounced after the establishment of the Federal patent court.
       

 

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