University of Southern California

Patenting Elasticities

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Article by Clark D. Asay
From Volume 91, Number 1 (November, 2017)

Over the last decade, a growing consensus has emerged: there are too many patents, and they are causing a host of problems. These problems include patent “trolling,” patent “wars,” and other wasteful societal costs. In explaining this patent overabundance, some scholars have pinpointed the United States Patent Office, the governmental body responsible for issuing patents, as the main culprit. Others have blamed patent holders themselves, identifying a number of incentives these parties have to pursue patents even in cases where doing so makes little economic sense. Overall, these analyses thus typically assume a high and relatively uniform demand for patents among inventive parties—one that the United States Patent Office is only too willing to satisfy.

Yet this focus on excessive patenting obscures the reality that parties likely differ significantly in their demand for patents and other forms of intellectual property. In economic parlance, different inventive parties are likely to exhibit different “elasticities,” or sensitivities, in their demand for patents and other types of intellectual property. This Article uses economic principles to disaggregate intellectual property demand by highlighting a number of factors that may affect a party’s demand for patents and other forms of intellectual property. It argues that resource-constrained parties are more likely to exhibit more elastic demand for patents, meaning they are more sensitive to the costs of patenting, both in general and relative to the costs of other intellectual property forms. As a result, rising costs of patenting are more likely to lead resource-constrained parties to forego patenting and rely on alternative, cheaper forms of intellectual property protection when available. Well-capitalized parties, on the other hand, are more likely to exhibit relatively inelastic, high demand for patents, regardless of the costs of other intellectual property types that may otherwise function as substitutes. Thus, well-capitalized parties tend to patent en masse and complement patenting with additional intellectual property protections when available.

With this theoretical framework in place, the Article then assesses several recent judicial and legislative changes in patent and trade secrecy laws, including the Defend Trade Secrets Act of 2016, the Leahy-Smith America Invents Act of 2011, and several important Supreme Court patent law cases. Overall, these changes have largely weakened patent rights while potentially strengthening other forms of intellectual property law such as trade secrecy. Many argue the patent law changes in particular are a step in the right direction. This Article’s analysis suggests these changes may suppress resource-constrained parties’ demand for patents while having little to no effect on well-capitalized parties’ demand for patents or other forms of intellectual property. Hence, these intellectual property changes may mean that resource-constrained parties patent even less relative to their well-capitalized counterparts, instead relying on other forms of intellectual property when available. The Article concludes by assessing this possibility and other potential implications for intellectual property law, innovation, and the economy more generally.

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