Coase-Sandor Working Paper Series in Law and Economics

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Law & Economics Working Papers


Patent applications are evaluated in light of the prior art. What this means is that patent examiners evaluate a claimed invention by comparing it with what in a rough sense corresponds to the set of ideas and inventions already known to the public. This is done for three reasons. First, the comparison helps to ensure that patents issue only in cases where an inventor has made a non-trivial contribution to the public’s store of knowledge. Second, it protects a possible reliance interest on the part of the public since, once an invention is widely known, members of the public might reasonably assume that the invention is free for all to use. And third, it pressures inventors to file their patent applications promptly lest some other inventor disclose a related invention or the applicant himself inadvertently let slip some fraction of his own research result. The prior art inquiry has a fourth policy implication, however, and while this one might not have been one of the motivating factors for establishing the inquiry in the first place, it is just as important when it comes to designing and interpreting sensible prior art rules. That additional wrinkle is simply this: the fact that patent applications are evaluated in light of the prior art gives firms a strategic incentive to create prior art. A firm can publish a journal article or engage in a public demonstration and in that way affect both a rival’s ability to patent a related invention and the rival's incentive to do so. Perhaps surprisingly, this can make the disclosing firm better off even though, by revealing information, the firm is likely helping its rival and, worse, narrowing or even fully preempting the very patent it seeks. In this Article, then, we explain the incentive for strategic disclosure. We show that a firm trailing in a given patent race has an incentive to disclose information in the hopes of preempting a rival's patent, but only if the laggard itself has little chance of leapfrogging the leader and winning the race. We show that a firm leading a patent race similarly has an incentive to disclose, this time in an effort to reduce its rival's expected payoff and in that way encourage the rival to quit the race. We consider the possibility that private negotiations will displace public disclosures, for example with the laggard agreeing not to disclose and in exchange receiving from the ultimate patentee some form of favorable licensing agreement. Lastly, we consider the implications all this might have for the patent system overall.



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