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Shapiro (2001) - Navigating The Patent Thicket (view source)
Revision as of 19:15, 29 September 2020
, 19:15, 29 September 2020no edit summary
{{Article
|Has page=Shapiro (2001) - Navigating The Patent Thicket
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|Has article title=Navigating The Patent Thicket
|Has author=Shapiro
|Has year=2001
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*This page is referenced in the [[Patent Thicket Literature Review]]
*This page is listed on the [[PTLR Core Papers]] page
#(Presumably) inadvertant infringement of patented prior art leading to hold-up
Source:
:''"The vast number of patents currently being issued creates a very real danger that a single product or service will infringe on many patents. Worse yet, many patents cover products or processes already being widely used when the patent is issued, making it harder for the companies actually building businesses and manufacturing products to invent around these patents. Add in the fact that a patent holder can seek injunctive relief, that is, can threaten to shut down the operations of the infringing company, and the possibility for holdup becomes all too real."''
Each of these is discussed in turn.
===Model===
<math>N\;</math> firms own patents on complementary inputs, with costs of producing a unit of <math>c_i\;</math>, charging a price <math>p_i\;</math>. The price of the product itself will be <math>p\;</math>, and assembling a unit will cost <math>\alpha\;</math>.
Competition at the assembly level ensures that:
:<math>p=\alpha + \sum_i p_i\;</math>
Demand for the product is <math>D(p)\;</math>, and the price elasticity of demand is therefore:
:<math>\epsilon = - \frac{D'(p)\cdot p}{ D(p)}\;</math>
The <math>N\;</math> firms set their component prices independently and non-cooperatively. That is the model assumes that each firm is a monopolist so it sets price (quantity) to maximize profits.
:<math>\pi_i = D(p)(p_i-c)\;</math>
Therefore the FOC is:
:<math>\frac{d \pi_i}{d p_i} = D(p) + D'(p)(p_i - c_i) = 0\;</math>
Summing across all <math>i\;</math>:
:<math>D(p)N + D'(p)\sum_i(p_i - c_i) = 0\;</math>
:<math>\therefore \frac{\sum_i(p_i - c_i)}{p} = \frac{D(p) N}{p D'(p)}\;</math>
Subbing in <math>\sum_i p_i = p - \alpha\;</math>:
:<math>\frac{p - \overbrace{\alpha - \sum_i c_i}^{c}}{p} = \frac{N}{\epsilon}\;</math>
With a single firm, <math>N=1\;</math>, the Lerner index is <math>\frac{1}{\epsilon}\;</math>, so with <math>N\;</math> firms the mark-up is <math>N\;</math> times the standard monopoly mark-up.
===Hold-up===
#Timing issues: no possibility of invent around with submarine patents, and thus hold-up
Source:
:''"In short, with multiple overlapping patents, and under a system in which patent applications are secret and patents slow to issue (relative to the speed of new product introduction), we have a volatile mix of two powerful types of transaction costs that can burden innovation: (1) the complements problem, the solution of which requires coordination, perhaps large scale coordination; and (2) the holdup problem, which is quite resistant to solution in the absence of either (a) better information at an earlier stage about patents likely to issue, and/or (b) the ability of interested parties to challenge patents at the PTO before they have issued and are given some presumption of validity by the Courts."''
#Holdup problems
Source:
:''"Our current patent system is causing a potentially dangerous situation in several fields, including biotechnology, semiconductors, computer software, and e-commerce, in which a would-be entrepreneur or innovator may face a barrage of infringement actions that it must overcome to bring its product or service to market. In other words, we are in danger of creating significant transaction costs for those seeking to commercialize new technology based on multiple patents, overlapping rights, and holdup problems. Under these circumstances, it is fair to ask whether the pendulum has swung too far in the direction of strong patent rights, ranging from the standards used at the Patent and Trademark Office for approving patent applications, to the secrecy of such app1ication, to the presumption afforded by the courts to patent validity to the right of patent holders to seek injunctive relief by insisting that infringing firms cease production of the offending products."''
