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Jay P. Kesan

This chapter reviews studies of non-practicing entities (NPEs) (aka “patent trolls”) and their effect on the United States patent system. The information presented is not intended to pass judgment or persuade readers that NPEs are definitively beneficial or detrimental to the patent system, but rather seeks to inspire readers to assess the issue of NPEs from a more informed and detailed perspective. There are varying opinions and interpretations regarding NPEs, their behavior, and the effects of their behavior. Current empirical studies offer mixed evidence and conclusions regarding the effect of NPEs on the patent system. After reading this chapter, a researcher will be capable of determining substantial differences in the behavior and characteristics amongst the various types of NPEs. This would further help the researcher to differentiate which kinds of NPEs’ behavior are detrimental and which are favorable to the patent system.

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John R. Allison

This chapter explores the concept of patent value, and what this commonly used but poorly understood term might mean. It critically reviews the extant theoretical and empirical literature on patent value and suggests ways in which various approaches to the topic could be improved.

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Petra Moser

Innovation is a major source of improvements in human welfare, and patent laws are intended to stimulate innovation. Yet the effects of patent laws on innovation are theoretically ambiguous. Strong patents that encourage pioneer inventors may discourage future innovators by reducing the pay-offs from their work. Economic history offers a wealth of empirical settings to study the effects of patent laws. Recent improvements in empirical methodology—through the creation of new data sets and advances in identification—have further improved the benefits of historical analyses. This chapter summarizes results from existing historical analyses of patent laws and highlights open questions.

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Robert P. Merges

This chapter describes various philosophical perspectives on the law and economics paradigm in intellectual property (IP). It begins with a description of utilitarianism, which is the philosophical foundation on which law and economics is built. It then describes an alternative way that law and economics can be understood: as a highly effective set of tools that are useful even if one is not convinced that IP law can be justified at the foundational level by a utilitarian account. Various alternatives to foundational utilitarianism are described; the chapter seeks to explain how a law and economics approach to issues in the IP field is consistent with these alternative foundational justifications for IP law.

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Jay P. Kesan and Andres A. Gallo

Intellectual property (IP) law regimes in the United States are designed as trade-offs between protection for creators (inventors, authors, and the like), and the interests of the consuming public. Reform of the patent system does not ascribe to a general idea of optimality or system efficiency, but must address and respond to a complex interplay of economic interests. We characterize the interplay between interested groups, not only with respect to patent law, but also for trademark law, copyright law, and trade secret law. We link stakeholder preferences and economic power to the lobbying power of different economic groups in Congress. This analysis offers a rich assessment of the chances of success, and the ways in which our IP intellectual systems transform and evolve with respect to changing technologies and the economic interests of different groups involved. We provide an overview of the political actors and legal institutions that participate in the creation of IP policy and describe the types of entities that are most interested in driving IP policy.

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Christopher B. Seaman

By law, an issued U.S. patent is presumed valid in court. While Congress placed the burden of establishing a patent’s invalidity on the challenging party, it failed to specify the particular quantum of proof necessary to overcome this presumption. In a 2011 decision, Microsoft Corp. v. i4i Limited Partnership, the Supreme Court held a patent’s invalidity must be established by clear and convincing evidence. However, a jury may be instructed that prior art not previously considered by the U.S. Patent and Trademark Office (USPTO) can assist the challenger in satisfying its burden. Several recent empirical studies have sought to assess the impact of the presumption of validity following Microsoft v. i4i. These studies generally find that the clear-and-convincing evidence standard can have a material impact on invalidity decisions in litigation. In addition, these studies suggest that invalidity challenges based on prior art not previously considered by the USPTO are more likely to succeed.

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Michael J. Meurer and Ben Depoorter

This chapter reviews the law and economics literature on intellectual property law and price discrimination. We introduce legal scholars to the wide range of techniques used by intellectual property owners to practice price discrimination; in many cases the link between commercial practice and price discrimination may not be apparent to non-economists. We introduce economists to the many facets of intellectual property law that influence the profitability and practice of price discrimination. The law in this area has complex effects on customer sorting and arbitrage. Intellectual property law offers fertile ground for analysis of policies that facilitate or discourage price discrimination. We conjecture that new technologies are expanding the range of techniques used for price discrimination while inducing new wrinkles in intellectual property law regimes. We anticipate growing commentary on copyright and trademark liability of e-commerce platforms and how that connects to arbitrage and price discrimination. Further, we expect to see increasing discussion of the connection between intellectual property, privacy, and antitrust laws and the incentives to build and use databases and algorithms in support of price discrimination.

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Michael Abramowicz

This chapter describes and assesses proposals to create alternatives to intellectual property for stimulating innovation that, unlike grants, are based on ex post assessments of inventions. Prize systems award money to the first or best to accomplish specified goals, while reward systems allow payments proportional to contribution. Design issues are considered, including the timing of payments, whether payments should be fixed or dependent on government assessments, whether the system should complement or replace traditional intellectual property, and whether a system should be designed for particular areas of inventive activity (such as pharmaceuticals) or applied more generally. The most important issue is that of valuation, and the chapter considers a variety of strategies for valuing contributions, including administrative assessment of ex post demand for inventions and the use of market mechanisms such as auctions. Effects on innovation and commercialization incentives are also explored.

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Thomas F. Cotter and John M. Golden

This chapter surveys the empirical literature on patent remedies. Section 2 discusses the literature on injunctions, beginning with an overview of legal doctrine and economic debates over “property rules” versus “liability rules,” and concluding with a summary of empirical studies that examine the frequency and circumstances of injunction grants or the nature of injunctions’ content and scope. Section 3 discusses the literature on patent damages, beginning with an overview of the law and economics of damages before proceeding to a review of the empirical literature on the prevalence of different types of damages, damages amounts, and possible explanations for damages outcomes. Section 4 briefly discusses other remedies, including declaratory judgments, for which there appears to be little relevant empirical literature. The conclusion suggests possible avenues for future research

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Research Handbook on the Economics of Intellectual Property Law

Vol 1: Theory Vol 2: Analytical Methods

Edited by Ben Depoorter, Peter Menell and David Schwartz

Both law and economics and intellectual property law have expanded dramatically in tandem over recent decades. This field-defining two-volume Handbook, featuring the leading legal, empirical, and law and economics scholars studying intellectual property rights, provides wide-ranging and in-depth analysis both of the economic theory underpinning intellectual property law, and the use of analytical methods to study it.