Improver Licenses: a Way to Reward Innovation without Stifling It?
Check out Cumulative and Overlapping Innovation by Adam B. Jaffe and Josh Lerner over at Harvard Business School Working Knowledge here as well as Jaffe and Lerner's book Innovation and Its Discontents: How Our Broken Patent System is Endangering Innovation and Progress, and What to Do About It, one of the Economist's Best Books of 2004, Economics and Business Category. Excerpt from HBSWK below:
A classic example of the tradeoff between rewarding pioneering inventions and allowing improvements is the Edison electric light bulb. Edison was granted the basic patent on incandescent lighting in 1880. For the next dozen years or so, there was much dispute about the validity and breadth of this patent. Many companies offered competing products. A number of these contained important improvements in the design of the filament and the bulb itself, and the cost of the bulb trended steadily downward.
Then, in 1891, Edison General Electric Company won an infringement suit against its competitor, United States Electric Lighting,and subsequently won injunctions against a number of competitors. The flow of improvements then slowed, until the expiration of the patent allowed competitors to re-enter and resume their efforts to improve Edison's design.
Now, surely Edison's invention was about as novel as they get. And Edison and his assistants put a lot of time and money into testing different materials until they succeeded with the carbon filament, justifying a patent to allow significant profits to be earned on the invention. But acknowledging the legitimacy of Edison's patent and his efforts to enforce it is not inconsistent with recognizing that the monopoly thereby created temporarily inhibited the subsequent improvement of the invention and the development of the industry more broadly.
In principle, subsequent inventors with good ideas about improving an important invention ought to be able to negotiate an agreement with the owner of the original patent that allows the improvement to be implemented.
This could be done by granting the improver a license to use the original patent, or by selling or licensing the improvement back to the holder of the original invention.
After all, if the improvement is really a good one, both the original inventor and the improver have an incentive to see it implemented. In practice, however, such agreements often are difficult to work out. After the Wright brothers patented their basic design for an aircraft stabilization and steering system, there were many others who wanted to work on a wide variety of different ideas for aircraft. But the Wright brothers refused to license anyone, and engaged in protracted litigation with a number of designers.
With the entry of the United States into World War I, the U.S. government in fact pushed the major aircraft manufacturers, including the Wrights' firm, to license their patents as a package, in order to ensure the rapid manufacture of planes and the development of new designs. The rapid development of numerous different aircraft concepts in the years after the establishment of this "patent pool" suggests that the pioneering patent—combined with the unwillingness or inability of the inventors to cooperate with their technological followers—temporarily retarded the development of technology.
