So it may be surprising to hear that economists studying patent systems have been concerned for quite some time that these are not functioning as effectively as they could. Some argue the patent system may be discouraging innovation in important technologies. Their argument has been that there are “patent thickets” in the very same technologies, which are contributing most to the growth in patent numbers.
A patent thicket is a set of patents belonging to many firms that protect overlapping parts of the technology space. In this case companies inadvertently block each other’s innovations. Patent thickets arise where individual products draw on innovations protected by hundreds or even thousands of patents, often with fuzzy boundaries. These patents belong to many independent and usually competing firms. Patent thickets can lead to hold‐up of innovations, increases in the complexity of negotiations over licenses, increases in litigation, and they create incentives to add more and weaker patents to the patent system. This increases transaction costs, reduces profits that derive from the commercialisation of innovation, and ultimately reduces incentives to innovate.
One worry is that patent thickets may stop companies large and small from even entering those technologies in which patent thickets are widespread. In this paper we analyse the effect of patent thickets on entry into technology areas by firms in the UK. We present a theoretical model that describes incentives to enter technology areas that differ in the degree of technological opportunity, complexity of technology, and the potential for hold-up in patent thickets.
We derive a number of predictions regarding effects of complexity (positive), opportunity (positive), expected hold up (negative) on entry from the model. The predictions are tested using data on patenting activity of UK firms. We distinguish empirically between complexity and hold-up potential and control for technological opportunity in several different ways. The measure of hold-up potential is associated with a reduction of first time patenting in a given technology area, controlling for the level of technological complexity and opportunity. Technology areas characterised by more technological complexity and opportunity, in contrast, see more entry. This is in line with the predictions we derive from the theoretical model. Our evidence indicates that patent thickets raise entry costs, which leads to less entry into technologies. This effect is independent of a firm’s size in our data.
These results support both the view that many patents are filed in technologies in which there is a lot of technological change and so much opportunity for new work and the view that some of these technologies are associated with patent thickets. We show that patent thickets reduce entry by 20%, where the baseline probability of entry into a technology area by a firm outside it is 1.5% in our sample. This effect is surprisingly strong and suggests that measures to reduce patent thickets would allow more entrants to compete in important technology areas.
Note for editors: ‘Technology Entry in the Presence of Patent Thickets’ by Georg von Graevenitz, Bronwyn Hall and Christian Helmers is a paper presented at the European Policy for Intellectual Property (EPIP) Conference, University of Glasgow, 2-3 September 2015. For more information visit: http://www.epip2015.org/
Georg von Graevenitz is Senior Lecturer in Innovation Management at Norwich Business School’s London campus and CREATe Fellow, University of Glasgow.
Bronwyn H. Hall is Professor of Economics, University of California Berkeley; NBER, IFS, NIESR.
Christian Helmers is Assistant Professor of Economics, Santa Clara University.
For further information contact the lead author Georg von Graevenitz (email: firstname.lastname@example.org) Or the CREATe PR team (email: email@example.com) .
New research presented at the EPIP 2015 conference will be shared on social media using the hashtag #epip2015