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The patent system is a critical part of technological innovation. Not only do patents incent innovating acitivty; patents facillitate efficient diffusion and commercialization of inventions after they are created. More importantly, patents act as a bridge that encourages exchanges between different parts of the technological community. These ex post aspects of the patent system are so important to innovation that in a critique of an independent invention defense proposal for patents, Mark Lemley was concerned with the impact on transactions in the "marketplace for patents."
Professor Ronald Mann and other scholars have tied the above relationships between patents and innovation to small- specialized firms, which produce the greater share of innovation in our society- and they hold a disproportionate number of patents too (I cite from Mann's summary of Arora and Merges, as their research is unpublished): …the theory articulated by Ashish Arora and his coauthors that a stronger IP system often leads to smaller and more specialized firms. Generally... strong IP rights encourage investment in specialized firms with a superior ability to innovate, largely because strong IP rights limit the costs of leakage that occurs when the locus of innovation is beyond a firm’s boundaries... The effect is particularly salient with technologically intensive inputs, and leads to investments in smaller specialized firms over vertically integrated firms. An interesting point is that the importance of patents highlights the weakness of small-specialized firms. What is that weakness? Well, for starters, they do not have the resources of larger, vertically integrated firms.
Small-specialized firms must implement the concept of comparative advantage as they do not have the resources that allow larger firms other means of appropriation. Small firms must stick with what they do best, and license patents from others in areas where they do not enjoy comparative advantage. …use of property rights to codify the output from R&D makes it much easier for firms of differing sizes and research emphases to settle into a cross-licensing equilibrium. Without some form of protection, it would be difficult to force participants in the industry to come to terms regarding how much they should contribute to agreements with their various cross-licensing partners, or to exclude from the equilibrium firms that do not contribute their share of innovation. That patents provide benefit to small-specialized firms is not simply a matter of sentiment, but a critical pulse with which to judge patent policies. These firms reflect decentralization and non-concentration in the technology industries, as well as the viability of new entrants and continuous flow of innovation to society. Scholars point to economic theory to argue that the decentralized nature of the technology industries, marked by small-specialized firms in a undertaking cumulative and incremental innovation, is made possible by a strong patent system. This suggest that patents may induce path dependence , but if the result is innovation in complex technologies that otherwise may not occur at the same level, then society benefits.
The patent system may appear non-beneficial to those who weild a moral ax against the world, but in other concerns, patents facillitate innovation landscapes with flexible and diverse transactions, as shown in their impact on small-specialized firms.
posted by Noel Le @ 7:00 AM | Academia, Patents
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