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Policy Implications of Weak Patent Rights

James J. Anton, Hillary Greene and Dennis A. Yao

Prepared for Innovation Policy and the Economy, NBER Conference

in Innovation Policy and the New Economy Vol. 6, Eds. A Jaffe, J. Lerner and S. Stern, 2006

Abstract: Patents vary substantially in the degree of protection provided against unauthorized imitation. In this chapter we explore a range of work addressing the economic and policy implications of “weak” patents—patents that have a significant probability of being overturned or are relatively easy to circumvent-- on innovation and disclosure incentives, antitrust policy, and organizational incentives and entrepreneurial activity.

Weak patents cause firms to rely more heavily on secrecy. Thus, the competitive environment is characterized by private information about the extent of the innovator’s know-how. In such an environment weak patents increase the likelihood of imitation and infringement, reduce the amount of knowledge that becomes publicly disclosed, and potentially reduce the incentives to innovate.

The discussion also highlights some implications of weak patents for antitrust policy. Weak patent rights increase the likelihood of patent litigation over commercially valuable patents and raises the specter of anticompetitive settlements. It is argued that allowing the antitrust agencies to refer some patents for reexamination by the patent office would make it easier for the agencies to investigate potentially anticompetitive IP settlements.

Finally, we note some implications for weak property rights in settings involving employee-inventors and employee misuse of confidential information. In the former case an increase in the strength of some legal property rights such as patents is a force that reduces the employer’s ability to prevent employees departing with valuable know-how, in part because a stronger property right increases the value of the employee’s start-up option. In the latter case, an increase in legal penalties for breach has the expected effect of decreasing breach of confidentiality.