Download This PaperHidden Costs of Free Patents
70 Pages Posted: 29 Dec 2017 Last revised: 8 Aug 2018
Date Written: December 24, 2017
Abstract
A growing number of companies, including some of the world’s largest patent holders, appear to be giving patent rights away for free. These companies are making patent pledges, defined here as voluntary unilateral promises to the public to limit the enforcement of their patents. While these pledges are widely celebrated as socially beneficial efforts to mitigate the negative impact of patents on open innovation, this article challenges the conventional wisdom. Just as there is no free lunch, there is no free patent. The article shows that patent pledges can sometimes create hidden costs for innovation that the law is not currently equipped to deal with. It identifies three ways in which patent pledges can create social costs: (1) enhanced opportunities for patent hold-up; (2) foreclosure of alternative technology paths; and (3) use of pledges to create entry barriers. These costs arise where patent holders exploit limitations in the legal framework governing patent pledges along with private information about their intellectual property and business strategies to act opportunistically. Drawing from other areas of law in which similar problems of opportunism occur, the article applies Professor Henry Smith’s theory of equity as a second-order safety valve for law to show how these costs could be mitigated through limited expansion of equitable doctrines within patent law.
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