The contract Theory of Patents

Transcription

1 The contact Theoy of Patents Vincenzo Denicolo, Luigi Albeto Fanzoni Intenational Review of Law an Economics23,2004 1

2 I. Intouction.Two istinct theoies of patents to justify the patent system ewa theoy contact theoy 1) Rewa theoy focuses on the non-exclusive natue of technological knowlege an states that the function of the patent system is to emuneate successful innovatos so as to encouage R&D effot. 2) Contact theoy emphasizes the non-ival natue of innovation. A tempoay popety ight is gante to innovatos in exchange fo isclosue. It states that the function of the patent system is to pomote the iffusion of innovative knowlege. 2

3 .Besies patents, tae secet law is also an effective tool to potect innovations.. By compaing the costs an benefits of patents vesus tae sececy, the authos povie an economic analysis of the contact theoy of patents as legal evices to inuce fims to isclose thei innovation to the public.. Thei main fining is that the isclosue motive alone suffices to justify the gant of patents. The optimal patent uation shoul stike a balance between the incentive to inuce isclosue an the aim of limiting the monopoly istotion inuce by patents. 3

4 II. The Moel. Thee is a continuum of patentable innovations. Each innovation occus in a sepaate inusty, with linea eman function P(Q)= a-q. Fo each innovation, thee is an innovato (she) an a potential uplicato ( he).the innovato can choose which type of potection to aopt ( patent o tae sececy ). 1) If she patents, she becomes a tempoay 1 monopolist. By setting pm = a 2, she gets monopoly pofit of patent T m = a fo the uation 4

5 2) If she elies on tae sececy, thee is a isk of secet leakage which occus with pobability1 z (0,1), an a isk of inepenent eiscovey by the uplicato, which occus with pobability y [0,1]. The paamete Z ( stength of sececy ) is exogenous. The uplication pobability y is chosen by the uplicato who faces a 1 2 uplication cost 2 α y, α has a cumulative istibution function F ( α )..If the uplicato manages to eplicate the innovation, he in tun has to ecie how to potect it. ( use patents o tae sececy) 5

6 The timing of the game playe by the fim is as follows: 1 Fist, the innovato ecie whethe o not to patent 2 Secon, if the innovato has not patente, the uplicato ecies his uplication effot. 3 Thi, upon successful uplication, the uplicato ecies whethe o not to patent. 4 If neithe the innovato no the uplicato patent, Natue etemines whethe the innovation leaks to the public o not. 6

7 At the beginning: 1 The law-make chooses the patent policy, i.e. a patent length T so as to maximize expecte social welfae. Define τ 1 e T, which can be seen as a nomalize patent length. 2 The law-make oesn t know the maginal uplication cost α of each innovation, but knows the istibution F ( α ) 7

8 III Fim s behavio The authos stat by consieing the ecision poblems of the innovato an the uplicato, fo any given level of α. At this stage, the nomalize patent uation τ is taken as an exogenous paamete. The uplicato s poblem: Upon successful uplication, the uplicato must ecie whethe o not to patent.. If he oesn t patent, his expecte payoff is υ z( / ) = : iscounte uopoly pofits times the pobability that the innovation oes not leak to the public 8

9 .If he patents, he has to shae the maket with the fist innovato until the patent expies, T T υ = e t = τ ( / ). 0 The uplicato s payoff is theefoe υ= z τ, fo τ < z, fo τ z Moving one stage back, the uplicato chooses optimal eseach effot y so as to maximize 1 = yυ αy 2 2 9

10 is If υ / α < 1, the optimal uplication effot υ y * ( α ) = α = z α, fo τ < z τ α, fo τ z If υ / α 1 *, then y ( α ) = 1 10

11 The innovato s poblem: The innovato must ecie whethe o not to patent. If she patents, she get: V ( τ ) = e = τ. T t p m t 0 m.if she elies on tae sececy, he payoff epens on the uplicato s behavio. Thus, V ( α ) = TS α α * * [(1 y( )]. z. m + y( ). z. * * [(1 y( )]. z. m + y( ).. α α τ, fo τ < z, fo τ z 11

12 Who patents in equilibium? Thee ae thee possible outcomes:.noboy patents.the innovato patents.the uplicato patents They pove that the thi outcome can not be pat of a sub-game pefect equilibium of the game. An thee is the following poposition: Poposition 1: Inepenent of the natue of the innovation, if the fist invento oes not patent, neithe will the uplicato. 12

13 Using the fact that the uplicato neve patent in equilibium, they conclue that the uplicato s payoff is υ z( / ) The optimal uplication effot is =. y * ( α ) = z α, fo z 1 α < 1, fo z 1 α Duplication is moe likely to take place if uopoly pofits ae lage, the iscount ate is lowe, maginal uplication cost is lowe, an if the innovation can be moe easily conceale fom the public. 13

14 Which innovations ae patente? When eciing whethe o not to patent, the innovato will compae patent pofits V p m ( τ ) = τ. with sececy pofits V α z y α y α * m * TS ( ) = [(1 ( )). + ( ). ]. VTS ( α ) is non-eceasing in α. So, thee is a patenting theshol ˆ( α τ ), if α ˆ( ατ) <, the innovato will patent. They pove that fo intemeiate values τ, i.e. fo τ 0 < τ z, solving V TS ( α ) V ( τ ) = p yiel αˆ( τ) αˆ( τ) with = 0 τ z τ 2 z m ˆ( ατ) =.. z τ m 14

15 Using the linea eman function, they obtain an explicit expession fo ˆ( α τ ) : = z 1 1 z τ ˆ( ).. [ k(1 k) a (1 2 k(1 k))] ατ Poposition 2: The innovation is moe likely to be patente if it can be uplicate at a lowe cost, it is less easily potecte fom public 1 isclosue ( if τ < 2 z ), it yiels geate monopoly pofits, an it yiels geate uopoly pofits ( as this makes uplication moe likely). 15

16 A lage iscount ate tilts the balance in favo of sececy, as it slows own uplication. With a linea eman function, innovations ae moe likely to be patente if they ae big ( lage a ) an if competition is soft ( small k). 16

17 IV Optimal patent length The optimal patent length * τ maximizes expecte social welfae, which is efine as the expecte value of the iscounte social etuns fom the innovation less the uplication costs. They pove that : w() τ m m =.. ˆ α f( ˆ α). F( ˆ α) τ m The optimal patent length must stike a balance between the incentive to inuce isclosue ( captue by the fist tem) an the aim of limiting monopoly istotion inuce by patents( the secon tem). 17

18 Poposition 4: The optimal patent length must stike a balance between the incentive to inuce isclosue an the aim of limiting the monopoly istotion inuce by patents. The optimal patent life is not shote than τ 0 > 0, so that at least the weakest innovations ae isclose ( i.e. those which ae uplicate fo sue). Hence, it is socially esiable to set patent life so as to inuce isclosue at least of the innovations that can by moe easily uplicate. 18