The Optimal Software Licensing Policy under Quality Uncertainty

The rapid rate of standard software development, and the need of users to stay current, has unleashed unprecedented levels of process and product innovations in the software industry. A new service model has emerged which delivers application software and services over the Web on a lease or subscription basis. Software vendors such as Sun, Oracle, and Microsoft have already adopted this innovative business model. They have expanded their sales offerings with lease contracts that augment their traditional one-time purchase transactions. Our paper studies the optimal licensing policy of a software vendor that uses that business model. We look at software vendors that are both selling (at a posted price) or leasing their products where as lessor they guarantee that the lessee will always have the latest version of the software on their desktop. We address some of the specific issues of implementing this policy at the packaged software market, including the impact of network externality, negligible marginal production costs, and upgrade compatibility. We show that by properly defining their pricing structure, software vendors can segment the market and realize effective second- degree price discrimination and show how and when software vendors can maximize their profits through the use of this new licensing policy

Technology Adoption and Fuzzy Patent Rights

This paper considers why a patentee may have little incentives to reduce the uncertainty of patent boundary. Clearer patent rights, i.e., when patent examination results better predict subsequent court decisions, provide better guidance to technologyspecific investment and encourage technology adoption. Undermild conditions, however, the patentee’s post-adoption payoff decreases in clarity. The patentee prefers to maintain “fuzzy” patent rights in order to monopolize the use of the technology, or when promoting technology adoption is not a strong concern. The latter happens when the patentee, as a pure licensor, has a low (ex ante) quality invention

Financing technology transfer

Global policy discussions increasingly focus on innovation and the knowledge economy as a driver of long-term growth. In parallel new forms of innovation processes are emerging, notably open innovation and innovation networks stressing the importance of connections between various stakeholders. Links between universities and the business sector are of particular importance as many inventions come out of universities but have to be further developed to become economically relevant innovations. New financing instruments and attracting private investors to technology transfer (TT) are necessary but difficult as the patterns of risk and information in this “in-between area” is complex: Technology is not basic anymore and it requires large amounts of capital to be scaled up – with uncertain market prospects. This paper addresses new financial instruments for TT, building on European Investment Fund’s experience in this field.Technology Transfer; Financing; Innovation; Commercialisation; Funding gap; Patents; Licensing; Intellectual Property

Copyright

Copyright is the branch of Intellectual Property Law that governs works of expression such as books, paintings and songs, and the expressive aspects of computer programs. Intellectual products such as these have a partially public goods character: they are largely inexhaustible and nonexcludable. Intellectual Property Law responds to inexcludability by giving producers legal rights to exclude nonpayers from certain usages of their intellectual products. The goal is to provide incentives for new production at fairly low transaction costs. However, the copyright owner will charge a price above marginal cost and this, coupled with the inexhaustibility of most copyrighted products, creates deadweight loss. Various copyright doctrines (such as the idea/expression dichotomy, the limited duration of the copyright ownership term and the doctrine of ‘fair use’) work to reduce deadweight loss and other costs within a larger structure that creates incentives. Copyright Law, unlike Patent Law, gives owners rights only against those who actually copy the work. This limitation, too, may serve to reduce both transaction costs and deadweight loss. Empirically it is unclear how successful copyright has been in creating incentives for production, reducing transaction costs and keeping deadweight costs low

The strategic use of patents and its implications for enterprise and competition policies

This report was commissioned as a study into the strategic use of patents. In the course of its case investigations and legislative reviews the European Commission became aware of changes in the use of intellectual property, in particular the use of patents. It was noted that firms’ uses of intellectual property are becoming increasingly strategic. This raised concerns about the implications of firms’ patenting behaviour for enterprise and competition policy. The following report contains a comprehensive review of patenting behaviour, the extent to which patenting is becoming more strategic and the implications this has for competition and enterprise policies

Business and financial method patents, innovation, and policy

Two court decisions in the 1990s are widely viewed as having opened the door to a flood of business method and financial patents at the US Patent and Trademark Office, and to have also impacted other patent offices around the world. A number of scholars, both legal and economic, have critiqued both the quality of these patents and the decisions themselves. This paper reviews the history of business method and financial patents briefly and then explores what economists know about the relationship between the patent system and innovation, in order to draw some tentative conclusions about their likely impact. It concludes by finding some consensus in the literature about the problems associated with this particular expansion of patentable subject matter, highlighting the remaining areas of disagreement, and reviewing the various policy recommendations.intellectual property, State Street, software, internet, business methods, patents, innovation

Patent Reform: Aligning Reward and Contribution

Economists and policy makers have long recognized that innovators must be able to appropriate a reasonable portion of the social benefits of their innovations if innovation is to be suitably rewarded and encouraged. However, this paper identifies a number of specific fact patterns under which the current U.S. patent system allows patent holders to capture private rewards that exceed their social contributions. Such excessive patentee rewards are socially costly, since they raise the deadweight loss associated with the patent system and discourage innovation by others. Economic efficiency is promoted if rewards to patent holders are aligned with and do not exceed their social contributions. This paper analyzes two major reforms to the patent system designed to spur innovation by better aligning the rewards and contributions of patent holders: establishing an independent invention defense in patent infringement cases, and strengthening the procedures by which patents are re-examined after they are issued. Three additional reforms relating to patent litigation are also studied: limiting the use of injunctions, clarifying the way in which "reasonable royalties" are calculated, and narrowing the definition of "willful infringement."

A Simple Theory of Defensive Patenting

This paper examines innovating firms’ incentives to engage in defensive patenting. It first establishes a “truce equilibrium” in patent enforcement: when litigation is costly, the equal strength of two symmetric parties’ patent portfolios deters any patent disputes along the equilibrium path. This equilibrium behavior generates two benefits of defensive patenting, namely, to prevent licensing outlays and to protect downstream investments. In addition, firms can use patents to coordinate non-contractible investment decisions. Depending on the joint interests, they can either reach a license in order to guarantee high investment incentives, or agree not to grant a license so that investments are deterred by the litigation threat. On the other hand, the strategic patenting concern may generate a bandwagon of patent accumulation, where firms rush to the patent office to get a patent, but the subsequent investment performance is the same as when there is no patent at all. The paper also argues that defensive patenting may weaken the effectiveness of patents as an appropriation scheme. This offers an explanation that the “pro-patent” policy shift in the United States since the 1980s may actually have undermined the incentive power of the patent system

Economics and the design of patent systems

The author uses intuition derived from several of his research papers to make three points. First, in the absence of a common law balancing test, application of uniform patentability criteria favors some industries over others. Policymakers must decide the optimal tradeoff across industries. Second, if patent rights are not closely related to the underlying inventions, more patenting may reduce R&D in industries that are both R&D and patent intensive. Third, for reasons largely unrelated to intellectual property, the U.S. private innovation system has become far more decentralized than it was a generation ago. It is reasonable to inquire whether a patent system that worked well in an era of more centralized innovation functions as well for the more decentralized environment of today.