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Archived updates for Monday, February 28, 2005

The Societal Cost of Defensive Patenting

A February 2000 study by Wesley M. Cohen, Richard R. Nelson, John P. Walsh of the National Bureau of Economic reserach suggests that there is also a good deal of patenting that is not readily explained by the relative effectiveness of patents as a device for protecting the profits due to specific inventions. In "Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (or Not)" the authors discuss their interviews and survey results on the reasons why firms patent. They conclude that there are common uses of patents that stand apart from the function of protecting the profits directly associated with either the licensing or commercialization of the patented invention.

One broader use of patents observed particularly in chemical (apart from drugs) and other discrete product industries is their combination to build patent fences around some patented core invention. A second common use of patents which also goes beyond the licensing or commercialization is patenting to become or remain a major competitor (i.e., "player") in an industry, often via the amassing of large portfolios:
These patents appear to be used as the basis for either threatening or
defending against litigation independent of whether they are considered to be
effective in their more conventional applications. This suggests that patents
can be used either defensively or offensively even if they are weak or untested.
They need only confer the right to sue and thus impose the costs of litigation
and possible injunctive relief on rivals. But presumably the effectiveness of
patents in such litigation-intensive strategies depends upon the firm's ability
to support the requisite legal talent, as suggested by our findings that smaller
firms are disproportionately dissuaded from applying for patents due to the
costs of their defense and disproportionately report patents to be ineffective.
The broad issue posed, however, by the pervasive defensive use of patents is
whether the social value of patenting is substantially reduced "because it
requires all to assume the overhead of defensive patenting."
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