Efficiency in the 'market for innovation'

Mark Schankerman, Alberto Galasso, Sun, 08/31/2008



Patents are generally considered as the dry preserve of academics and legal theorists, but are, however, a key element in the innovation process. The 'market for innovation' - the licensing and sale of patents - is, for example, one of the principal incentives for firms to invest in R&D.

European patent specialists have looked to the US patent system as a model, and have tried, since the 1960s, to introduce a single European patent. A 'Community Patent', they argue, would save firms the cost of having to apply for protection under different patent regimes and would act as an incentive to invest in developing new technology. Others have been more sceptical of using the US system as a model for Europe, pointing to the fragmentation of patent rights, 'patent thickets', and with the establishment of the centralised appellate court (CAFC), as serious flaws in the US system.

In CEPR DP 6946, Galasso and Schankerman set out to examine the impact that these US developments have had on market efficiency, by studying the length of patent infringement disputes and find that the US system has performed surprisingly well in recent decades. The authors develop and test a model which suggests that that patent fragmentation will reduce bargaining delay in each dispute. In addition, they predict that the introduction of the Court of Appeal for the Federal Circuit (CAFC) will have also decreased the length of these cases. Using data on the timing of patent case settlements from 1978-2000, the authors find significant evidence to support their predictions. In particular, the creation of the CAFC has pushed down the time taken to settle a dispute case by 7.8 months on average. The US system, they conclude, has worked better than most people think in recent years.

Summary by CEPR staff

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URL:  http://www.cepr.org/pubs/new-dps/dplist.asp?dpno=6946&action.x=0&action.y=0&action=ShowDP

Topics:  Microeconomic regulation

Tags:  patents, innovation, dispute settlement, litigation, CAFC

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