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An interesting paper on Professor Edmund Kitch’s famous prospect theory of patents, and a critique of that theory by Professors Robert Merges and Richard Nelson. John Howells, Simplifying the Complex Economics of Patent Scope - A Critical Revision of the Use of Historical Sources in Support of the Thesis that Broad Patent Scope Enables Useful-Technology Suppression, SSRN (2007).
Howells re-examines patents studied by Merges/Nelson in their challenge to Kitch’s theory that broad patents play a transactional-prospect role in innovation. Howells finds that the particular patents may have hindered, but not blocked, downstream development, and at this, it was not their scope but patent administration that was often the culprit. The paper concludes:
Kitch’s prospect theory of patents survives this particular test against the historical record. In particular the idea that property rights provide effective development incentives for novel technical ideas is confirmed rather than undermined. Kitch’s theory, where broad patents early in the innovation process facilitate efficient coordination of downstream inventions, has been termed radical by many scholars. The theory relies on effective licensing between initial and follow-on innovators, thus, falsification of the theory, as presented by Merges/Nelson, would point out patents that have blocked technological development. Merges/Nelson argued that the prospect theory is least pertinent to industries with cumulative innovation (as opposed to groundbreaking, pioneering innovation). They reviewed historical patents in the aerospace, rado, electricity and computer industries, and found that in these cumulative industries broad patents did not have the effect envisioned by Kitch.
The work of Merges/Nelson lead Professor Adam Jaffe to remark: ...economists who have modelled patent scope and development, all ...find broad scope to be desirable. If their (Merges/Nelson) paper is something of an ‘outlier’ within the economics literature there is additional reason to re-examine their empirical claims. And now, 30 years after Kitch formulated his famous theory, and nearly 20 years after the critique by Merges/Nelson, Howells may have given the prospect theory its awaited revitalization.
Jaffe, A. 2000. 'The US Patent System in Transition: Policy Innovation and the Innovation Process', Research Policy, 29, 531-557.
Kitch, E.W. 1977. 'The Nature and Function of the Patent System', Journal of Law and Economics, 20, 265-290.
Merges, R. and R. Nelson 1990. 'On the Complex Economics of Patent Scope', Columbia Law Review,90, (4) 839-916.
posted by Noel Le @ 7:03 AM | Academia, Patents
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