JIBS Working Papers,
Jönköping International Business School

Abstract: We are well familiar with the economic analysis of a patent system in terms of a temporary monopoly on products, benefitting from marginal process inventions, formulated under conditions of certain future demands. This article develops an experimental and dynamic microeconomic model useful for studying the patent system as a trade system, where patented technology is exchanged in organized competitive markets, under uncertain future demands. An economic system design is developed to study transparent prices of patents, dynamic gains from using a patent in multiple industries and the coordination of invention, intermediary and innovation activities using a linear contract on patents (fixed fee plus royalty on revenues). A trader is introduced together with inventor and innovator agents in order to multiply the value (use) of the technology. Three mechanism designs and two levels of presumption of validity of the underlying patent right are proposed. The analysis differs from previous work on patents, trade and economics in that the focus is on the competitive pricing of the rights themselves, using demand side bidding. An informal theory is outlined to price the dual values of a patent (investing and blocking). Based on this proposition tentative hypothesis are outlined for two initial experiments using the outlined economic system design.

Keywords: patent

23 pages, November 10, 2010

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