Congestion Pricing for Patent Applications

Abstract

In recent years a great deal of attention has been paid to patent reform. This debate is exemplified by recent popular publications (Jaffe and Lerner, 2004; Bessen and Meurer, 2008), as well as publicized patent litigation such as the NTP v. Research-in-Motion patent litigation (the Blackberry patents). At the same time, scholars point to the over-burdened patent offices, the growth in patent applications, and the proliferation of low-quality or overlapping patents. In this paper, we take a novel approach to dealing with the flood of applications at the patenting authorities in the US and Europe and the resulting delay and issuance of low quality patents. We explore the magnitude of the congestion externality and seek to determine the optimal balance of the direct costs of applying for a patent with the indirect cost caused by regulatory delay. Our proposed theoretical and empirical framework enable explicit measurement of the cost of delay and the implications of changing patent application fees. The results have implications for a variety of policy questions involving optimal fees, patent quality, and competition policy. We include in this submission a basic theoretical model that can be extended to examine a number of policy implications, including the relationship between examination time and patent quality. We also describe an empirical approach that enables quantification of the cost of delay. Both the model and the empirical work enable us to discuss additional policy questions such as the importance of application versus renewal fees, the consequence of the self-funding constraint on patent offices, and the impact of higher quality patents on rent-seeking activities. Preliminary results show that the patent office revenue maximizing fee exceeds the optimal fee for patent holders, but that the optimal fee for patent holders is positive.This research benefited from a Tilburg Law and Economics Center (TILEC) IIPC grant.