LECTURE 7
What are the three main patterns of cumulative innovation?
Basic and applied research -> one innovation enables to develop many others
Research tools -> one innovation needs of many other innovations to be developped
Quality ladders -> series of products that improve each others
What mechanisms exist that could reward inventors of basic technologies?
Ex ante and ex post licensing -> transfer right to use IP
Research exemptions -> 2nd innovator can use the patented innovation without licensing, but must license to comercialize
Patent pool -> organisation owning a set of patents that enables to license all of them at a fixed price
Leading breadth -> give the first innovator IP rights over a set of future improvements profit
When and how could patent pools encourage innovation?
When technologies licensed are complements -> that way there is no risk of collusion
Patent pools enable joint prices of licensing technologies to be lower.
Without a patent pool, if two firms owning complementary patents set the prices as they would do in a joint setting, one of them has an incentive to raise their prices and get the price hike. As a consequence, the other firm would have to raise the price too to compensate for the loss in consumers. The firm who raised first would get the price hike and the firm who did not would get less profits, and consumers would be lost overall.
A patent pool avoids this deviation.
How does cumulative innovation affect the calculation of private and public returns to innovation?
Sometimes, the public returns of an innovation itself are small, but such innovation enables to develop others that generate greater social returns, so this first innovation is crucial to generate those returns.
Thus, to be able to reach those social returns, there must be a private incentive to create the first innovation, which sometimes needs of the provision of part of the returns of the future innovations to the first innovator to compensate for its costs.
What are the conditions for a successful innovation policy under cumulative innovation?
Joint profit of the inventors must be large enough to cover the development cost
Redistribute the profits of each state so that there is an incentive to innovate at each state
Does current intellectual property policy provide incentives for cumulative innovation?
No, for example, when patents are invalidated, their citation increases by 50%
How can the value of a patent be assessed?
A firm's valuation of a patent depends on what would have happened in the absence of the latter -> other firm would have made that patent, it would have been public knowledge or that innovation would not be made at all?
The distribution of the patent values is skewed, a few patents concentrate the majority of the total patents worth. Furthermore, the mean value of a patent (estimated by the firm's decision to maintain it) is lower than the average development cost, yet, patents relate to a higher market value to book value, so they add value to the firm.
What is the difference between the worth of a technology and the worth of a patent right?
The worth of a technology is defined by what it brings to society -> increase gains from trade, positive externalities
The worth of a patent right is determined by what it brings to the firm -> market power, income through licences
At the end is determined by what would be the situation of the firm if the patent did not exist