Patents are widely-accepted indicators of innovation: they are used to measure the productivity of industrial researchers, and the value of intangible assets by venture capitalists and banks accepting patents as collaterals on loans.
This popularity is reflected by the formidable global growth in the applications for patents. The result is that the process of a patent grant takes much longer than in the past. For instance, at EPO (European Patent Office) the average wait is now 44 months. A patent application can be then used as a competitive threat to potential entrants or as a bargaining chip in license agreements, much earlier than the actual release of the patent (in 56% of cases, at EPO).
Due to strong growth in applications, the evaluation process has become less accurate, with negative consequences on the quality of the patents being granted. The problem is very in serious, when it's the case of inventions that are hard to assess, such as business methods and software. Not by chance, the distribution of the economic value of patents is very symmetrical: only very few patents bring great value to their owners, while the vast majority of them have negligible value.
The economic value of a patent depends from at least three elements: the quality of the protected technology, as signaled by the citations received by subsequent patents; the efficacy of protection from imitation (since the owner of an unprotected technology cannot appropriate its economic benefits in full); and its strategic potential. As far as the third element is concerned, it's clear that many firms, especially in electronics and pharmaceutics, own giant portfolios of patents for strategic reasons. In fact, a significant portion of patents is never directly employed, but is used as medium of exchange in order to have access to other patents, or to block rival or complementary inventions (so-called blocking patents).
In industries where cumulative technological change prevails, as in software and semiconductors, it's likely that developing an invention requires access to numerous pre-existing patents. The costs to reach license agreements for the use of related patents (called patent thickets) can discourage further innovation. The owners of patent thickets often stipulate agreements called patent pools, for the joint exploitation of the patents they control. Patent pools reduce transaction costs, but can have adverse effects on competition, especially when they involve a high concentration of basic technologies, such as in the cases of MPEG-2 (image compression) and 3G (mobile telephony) technology standards.
An extreme form of the strategic use of patents is represented by patent trolls, companies who buy patents only to resell or license them. For instance, NTP sued RIM (Blackberry) for violating its patents. The legal possibility that the Blackberry service could be interrupted, and that RIM would undergo heavy economic damage, made the company opt to pay $620 million to NTP, rather than having to face the risk.
Summing up, the booming demand for patents and the growing strategic use made of them requires a reform of the patent system (e.g. a higher progressivity in renewal fees) and its stronger coordination with industrial policy (innovation and antitrust).
by Salvatore Torrisi,
Professor at Università di Bologna and
Researcher at the Knowledge, Internationalization and Technology Studies (Kites) center at Bocconi