Patent Assertions: Are We Any Closer to Aligning Reward to Contribution?

Fiona Scott Morton, Carl Shapiro

NBER Working Paper No. 21678
Issued in October 2015
NBER Program(s):Industrial Organization, Law and Economics

The 2011 America Invents Act was the most significant reform to the United States patent system in over fifty years. However, the AIA did not address a number of major problems associated with patent litigation in the United States. In this paper, we provide an economic analysis of post-AIA developments relating to Patent Assertion Entities (PAEs) and Standard-Essential Patents (SEPs). For PAEs and SEPs, we examine the alignment, or lack of alignment, between the rewards provided to patent holders and their social contributions. Our report is mixed. Regarding PAEs, we see significantly improved alignment between rewards and contributions, largely due to a series of rulings by the Supreme Court. Legislation currently under consideration in Congress would further limit certain litigation tactics used by PAEs that generate rewards unrelated to contribution. We also see some notable developments relating to SEPs, especially with the recent reform to the patent policies of the IEEE, a leading Standard-Setting Organization (SSO) and with several recent court decisions clarifying what constitutes a Fair, Reasonable and Non-Discriminatory (FRAND) royalty rate. However, other steps that could better align rewards with contributions on the SEP front have largely stalled out, particularly because other major SSOs do not seem poised to follow the lead of the IEEE. Antitrust enforcement in this area could further improve the alignment of rewards and contributions.

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Document Object Identifier (DOI): 10.3386/w21678

Published: Fiona Scott Morton and Carl Shapiro, "Patent Assertions: Are We Any Closer to Aligning Reward to Contribution?" Innovation Policy and the Economy 2016 16:, 89-133

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