that make a previously patented innovation accessible to competitors
increase overall likelihood of improving upon that breakthrough while
also raising profits for the original innovator and market welfare,
according to a study by a University at Buffalo economist.
practice of free-licensing—giving up patent protection—corresponds to
an evolutionary step in the study of patents and their effect on
innovation, says the study’s author Gilad Sorek, assistant visiting
professor of economics at UB.
research arose from the notion that a too-tight patent protection
actually may hinder technological progress, reflected in sovereign acts
taken by firms who give it up,” he explains.
The study, to be published in a forthcoming issue of Economics Letters,
shows that the benefits of giving up patent protection outweigh the
risks of surrendering a share of the market. By inviting further
research, Sorek says, the original innovator is able to stimulate demand
for its product. The company may lose a share of the market, but its
product ultimately becomes more valuable as a result of the extended
work is theoretical but does cite previous research that provides
examples of technological leaders taking actions to attract rivals,
including Adobe putting both Postscript and PDF formats in the public
domain and IBM donating a number of patents to other developers.
the scenarios I study, further innovation happens [through
free-licensing] because a firm needs more research-and-development
efforts to be taken by other innovators to stimulate the development of
complementary technologies, or in order to encourage consumers stepping
into a new market ” says Sorek.
uses hardware and software companies as an example. He says that if a
hardware manufacturer sees many firms working to improve software that
runs on its equipment, the probability of that software improving is
greater than just one firm working toward that goal. Because there is a
greater probability of success, Sorek says, the hardware firm will be
more likely to invest in improving upon its own technology, which in
turn makes software improvement more profitable.
doesn’t make any difference to the hardware firm which software
developer makes an improvement,” says Sorek. “The hardware firm is
concerned only that the improvement happens.”
are routinely licensed by developers in exchange for royalties. But
free-licensing is strictly an invitation to compete. Innovators are not
collaborating, but continuing efforts to independently improve upon a
research lines are crucial,” say Sorek. “If two firms collaborate,
pursuing the same experiment, those firms either succeed or fail
together. There is not much to be gained. But by working independently,
we have independent probabilities for success.”
that success extends beyond the companies themselves to the consumers
they serve. As such, the study seems to validate the aphorism, “A rising
tide lifts all boats.”
doesn’t just make innovators better off; it makes current consumers
better off and it provides the nexus to the next technological
breakthrough,” says Sorek.
Source: University at Buffalo