Intellectual Property and Entrepreneurship: Volume 15

Although issues of intellectual property rights would seem to be ones of interest only to obscure groups of academics and lawyers, they have become topics of everyday discussion among the regular population. Alleged copyright infringements by teenagers downloading music from the internet and accompanying threats of prosecution as well as charges of strategic patenting to harm competitors in recent high profile antitrust cases have placed intellectual property into public and political debate.

There is growing public interest in alternatives to intellectual property including, but not limited to, prizes and government grants. We collect various historical and contemporary examples of alternative incentives, and show when they are superior to intellectual property. We also give an explanation for why federally funded R&D has moved from an intramural activity to largely a grant process. Finally, we observe that much research is supported by a hybrid system of public and private sponsorship, and explain why this makes sense in some circumstances.

There has been a recent surge of interest in open source software development, which involves developers at many different locations and organizations sharing code to develop and refine programs. To an economist, the behavior of individual programmers and commercial companies engaged in open source projects is initially startling. This paper makes a preliminary exploration of the economics of open source software. We highlight the extent to which labor economics, especially the literature on career concerns’, can explain many of these projects’ features. Aspects of the future of open source development process, however, remain somewhat difficult to predict with off-the-shelf’ economic models.

This chapter examines the role of “continuations” (procedural revisions of patent applications) within software patents and overall patenting in the United States during 1987–1999. Our research represents the first effort of which we are aware to analyse data on continuations in software or any other patent class, and as such provides information on the effects of 1995 changes in the U.S. patent law intended to curb “submarine patenting.” Our analysis of all U.S. patents issued 1987–1999 shows that the use of continuations grew steadily in overall U.S. patenting through 1995, with particularly rapid growth in continuations in software patenting. Sharp reversals in these growth rates after 1995 suggest that changes in the U.S. patent law were effective. Continuations were used more intensively by packaged-software firms prior to the effective date of the 1995 changes in patent law than by other patentees, and both software and non-software patents subject to continuation tend to be more valuable.

Patent litigation has been rising rapidly in the United States since the mid-1980s, and particularly so in high-technology industries. The strategies pursued by firms with their patents have a significant influence on their decisions to file suit, and on the outcomes within litigation. The influence of strategic motivations on settlement outcomes is studied in two illustratively different industries – computers and research medicines. Evidence is found for two types of influences – the use of patents (as isolating mechanisms) to protect valuable strategic stakes, and their “defensive” role in obtaining access to external technologies (through mutual hold-up).

This paper focuses on two related questions at the intersection of antitrust and intellectual property law. First, under what circumstances must the holder of a patent or a copyright or the owner of a trade secret allow others to use that intellectual property? Second, under what circumstances can the holder of an intellectual property right use that right to make it difficult for another party to succeed in a related market? These questions have vexed antitrust and intellectual property scholars alike ever since the Federal Circuit ruled in 2000 that patent holders “may enforce the statutory right to exclude others from making, using, or selling the claimed invention free from liability under the antitrust laws,” a ruling that directly contradicted the Ninth Circuit ruling that antitrust liability could be imposed for almost identical conduct, depending on the motivations of the patent holder. The various proceedings in United States v. Microsoft only added fuel to the firestorm of controversy.After briefly retracing the jurisprudential path to see how this situation arose, we propose a solution that primarily involves a variation on the real property concept of adverse possession for the intellectual property space along with a slight extension of the Essential Facilities Doctrine for industries that exhibit network effects. We examine, both for firms with and without market power, how our proposal would resolve the situations presented by large fixed asset purchases, the introduction of entirely new products, and operating systems with network effects. We also demonstrate how our proposal could be applied in the European antitrust enforcement context.

There is a tension between the literatures on incomplete contracting and transactions cost economics regarding the importance of ex post governance and the extent to which formal theories of incomplete contracting capture salient aspects of exchange relations. In this paper, we empirically examine how firms structure joint R&D agreements to illuminate how contracts can be incomplete and how governance can matter. We employ a dataset of 96 contracts to construct a taxonomy of the types of mechanisms firms use in organizing collaborative R&D, and indicate how groups of mechanisms line up with various types of contracting hazards. The results suggest that the allocation of property rights over innovations at the time of contracting between R&D partners is an important aspect of contract design. But they also suggest that weak property rights admit scope for other dimensions of contract. In particular, the research indicates that while knowledge spillovers may give rise to appropriability hazards, efforts to contain or channel knowledge spillovers may enable joint venture members to strategically block other members’ follow-on commercialization or research. Firms design joint R&D governance mechanisms to balance spillover hazards and strategic blocking.

This paper investigates the impact of peer-to-peer networks that promote the unauthorized downloading of MP3 files exert on the recording industry. Although Napster was the most famous of these systems, its progeny have continued to allow millions of music listeners to download music (and other) files without remuneration to the copyright owners. Economic theory does not allow us to determine what the impact of such downloading will be. Using data on the historical sales of prerecorded music I examine in detail the recent decline in record sales and attempt to gauge the importance of various factors that have been put forward to explain this decline. My conclusion is that the evidence is most consistent with a claim that MP3 downloads decrease sales. Nevertheless, it is unclear whether the damage to the industry will be fatal.

In many sectors property rights over knowledge and information are weak as they are embodied in employees, competitors can copy or customers can pirate. Yet comprehensive studies show that firms systematically invest in these assets. We offer a simple taxonomy of strategies that firms use to cope with weak property rights.We classify these strategies in three groups: (i) Some firms threaten offenders with strong competition. (ii) Other firms exploit complementarities and offer potential offenders a better deal than they can get elsewhere. (iii) And yet other firms exploit weak property rights and make profits on complementary assets or products that they can own.We go beyond taxonomy by showing when a particular strategy works. It depends systematically on the characteristics of both the asset and the investing firm.