The Economics of the European Patent System: IP Policy for Innovation and Competition.

THE ECONOMICS OF THE EUROPEAN PATENT SYSTEM: IP POLICY FOR INNOVATION AND COMPETITION

Dominique Guellec and Bruno van Pottelsberghe de la Potterie (2007)

Oxford University Press, Oxford, New York, Melbourne; Print ISBN: 978-0-19-921698-7; 266 pages; US$99.00 hardbound

In this book, two chief economists of the European Patent Office (EPO), Dominique Guellec and Bruno van Pottelsberghe de la Potterie, investigate the economics of patent systems, review the organization of EPO, and propose changes to the European patent system. This book is a landmark integration of their profound economic insights and expert knowledge of the European patent system. It is a timely contribution to the patent research literature that has so far overwhelmingly focused on the US patent system. This book can be a major reference for all stakeholders of patent systems, including economists, policy makers, and patent practitioners.

This book has three unique features. First, after a brief introduction in Chapter 1, this book gives an excellent overview of the genesis and evolution of patent systems in Chapter 2--from the first patent law in Venice in 1474 to the current situation, including the agreement on TRIPs (Trade-Related Aspects of Intellectual Property Rights). Most readers would be amazed at the rich history that can inform today's debate on patent policy.

Second, to the best of my knowledge, this is the first book that comprehensively analyzes the various economic dimensions of patent systems. The economic rationale of patents, which is presented in Chapter 3, lays the foundation for the following chapters. Three juxtapositions in this chapter are particularly helpful to understand the economics of patents: 1) patents as a natural right vs. patents as an incentive mechanism, 2) tangible property rights to prevent the 'tragedy of the commons' by internalizing negative externalities vs. intellectual property rights to reduce future scarcity of new technology by inducing more ex ante investment, and 3) other instruments of innovation policy (e.g. public R&D, prizes, and R&D tax credits) funded through the general tax system contributed by all citizens vs. patents funded through a targeted tax charged to only buyers of the protected good. This chapter illustrates that a good patent system should strike a balance between enhancing incentive to innovate and causing deadweight loss for maximum society surplus, and between encouraging knowledge disclosure and blocking access to knowledge for further innovation. Chapter 4 further looks at the various uses of patents by firms, including licensing, patent pooling, gaining freedom to operate and blocking competitors, as well as the latest patent-based financial instruments, such as patent sale-and-lease-back and patent litigation insurance. This chapter has a strong focus on how competition policy should be deployed to rein in socially detrimental licensing practices by firms in the market for technology. Chapter 5 illustrates how the design of key parameters of patent systems, including subject matter, inventive step (equivalent to 'non-obviousness' in the US patent system), scope and duration, can tip the delicate balance that an ideal patent system is supposed to maintain. When these parameters are considered in combination, you will realize that patent systems are such a complex interlinked jigsaw puzzle.

Third, this book offers a detailed analysis of the European patent system. In Chapter 6, you will find an in-depth discussion of patenting procedures and different filing strategies at EPO. Anyone interested in obtaining a patent from the EPO should carefully read this chapter. Chapter 7 compares operations at the three main patent offices: EPO, USPTO and JPO. It explains that the higher costs of European patents, caused by national jurisdictions after a patent is granted by the EPO, are partly compensated by the more rigorous granting process at the EPO especially compared with the USPTO. In Chapter 8, the last chapter, the two authors make a series of suggestions to address the ongoing challenges facing the European patent system. They recommend that the standards for granting patents should be raised in order to both weed out dubious, frivolous patents and break the vicious cycle between lower patenting standards and the explosion of the EPO workload. Besides further integration of the European patent system, they also propose that a preamble be added to the European Patent Convention (EPC) elucidating the basis of which the EPO was established. This preamble would clearly spell out the economic mission of a patent system: encouraging innovation and diffusion of knowledge while taking into account the need for preserving competition.

The two authors describe their book as a handbook on the economics of patents. Indeed, this book undoubtedly lays the ground for further substantive debates about patent policy. However, I find that one of the twin aims of this book, introducing patent lawyers and practitioners to the economic mission of patent systems (the other being introducing economists to the sophistication of patent law and practice) may be somewhat compromised by extensive references to the theoretical economics literature of patents that is not very reader friendly to non-specialists.

Moreover, I believe that more caution should have been exercised in citing empirical studies based on cross-sectional research designs. For example, in Chapter 7, where academic patenting is concerned, van Looy et al.'s (2006) study of K.U. Leuven (Belgium) is cited as empirical evidence of 'a positive and mutually reinforcing relationship between academic patents and the quality and quantity of scientific publications' (p. 213 in the book). But their study directly compared the publication behaviour (quantity, quality, and the nature of publication) between inventing academics and their non-inventing peers. Such studies can suffer serious self-selection bias and thus leave the key research question largely unanswered--would inventing academics have contributed a lot more to open science had they not become an inventor? Actually, most recent studies based on longitudinal research designs have found evidence of negative effects of academic patenting (Murry & Stern 2005; Azoulay et al. 2006; Rosell & Agrawal 2006). As pointed out at the end of the book, empirical research is sorely needed to make evidence based policy changes to our patent systems.

References

Murray, F.E., Stern, S., 2005. Do formal intellectual property rights hinder the free flow of scientific knowledge? An empirical test of the anti-commons hypothesis. NBER Working Paper 11465, Cambridge, MA.

Azoulay, P., Ding, W., Stuart T., 2006. The impact of academic patenting on the rate, quality, and direction of (public) research. NBER Working Paper 11917, Cambridge, MA.

Rosell, C., Agrawal, A., 2006. University patenting: Estimating the diminished breadth of knowledge diffusion and consumption. NBER Working Paper 12640, Cambridge, MA.

van Looy, B., Callaert, J., Debackere, K., 2006. Publication and patent behaviour of academic researchers: Conflicting, reinforcing or merely co-existing? Available at SSRN: http://ssrn.com /abstract=874905.

REVIEWER

ZI-LIN HE

Department of Organization and Strategy

Tilburg University