Entrepreneurs often rely on intellectual property (IP) to earn a return on their innovations, and also compatibility standards, which allow them to supply specialized components for a shared technology platform. This paper compares the IP strategies of small entrepreneurs and large incumbents that disclose patents at 13 voluntary standard setting organizations (SSOs). These patents have a relatively high litigation rate. For small private firms, the probability of filing a lawsuit increases after disclosure to the SSO. For large public firms, the filing rate is unchanged. Although forward citations increase after disclosure for all firms, the size of this effect is the same for entrepreneurs and incumbents. The authors thank the editors and anonymous referees for comments. Shane Greenstein,

∗Funding for this research was provided by the Computer and Communications Industry Association, whose members can be found at

Economic incongruities in the European patent system

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar. Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Non-technical summary The effectiveness of patents to stimulate R&D is often limited. If innovation is sequential and complementary, patent protection may even stifle technical advance (Bessen and Maskin, 2006). The surge of patenting in complex technologies suggests that firms accumulate large patent portfolios rather to secure freedom to operate Patents provide a right to exclude but not necessarily a right to use. Surging patent filings has resulted in thickets of overlapping patents (Hall et al., 2012). These mutual blocking relationships among multiple firms are difficult to resolve. IP ownership is fragmented which raises coordination costs and royalty stacks The uncertain scope of patent protection may furthermore result in inadvertent patent infringement Citations among German owners of European patents are used to identify owners of overlapping patents. It is usually difficult to identify relationship-specific investments directly. Fixed tangible assets appear, however, as feasible proxy Using data from the Mannheim Innovation Panel, I find that fragmented IP reduces the investment propensity of firms with small patent portfolios. This suggests that market entry is difficult for firms lacking large patent portfolios as bargaining chips for licenses. Firms with large patent portfolios are less likely to invest in innovation if they cite owners of overlapping patents with smaller stocks of fixed capital. This suggests that large innovators incorporate the risk of held up application-specific capital in their investment decisions. Hence, the effects of patent thickets on innovation appear not uniform among firms. Das Wichtigste in Kürze Abstract Thickets of partially overlapping patent rights raise costs to secure IPR for innovation.

(Very preliminary. Please do not circulate.) This paper considers why a patent-holder would have low incentives to reduce the uncertainty of patent boundary. Clearer patent rights, i.e., when the patent office examination results are more informative about subsequent court decisions, will provide better guidance to technology-specific investment and encourage technology adoption. Under mild conditions, however, the patent-holder’s post-adoption payoff is decreasing in clarity. The patent-holder, then, prefers to maintain “fuzzy ” patent rights when she wants to monopolize the use of the technology, or when promoting technology adoption is not a strong concern for her. The latter happens when the patent-holder, as a pure licensor, has a low (ex ante) quality invention. The paper also shows that early licensing can eliminate the patent-holder’s efforts to clarify patent boundary without jeopardizing technology adoption. In its absence, however, public decision-makers (the patent office or court) should assume the role to provide certainty of patent rights.

Graham J.L. Kemp, to whom I would like to express my deep gratitude for his advice, guidance and encouragement. I benefited a lot from close collaboration with him. I would also thank other teachers and students in our program for their help and encouragement. II A database of antibody sequences and structures was built in an earlier project [Kemp et al., 1994]. That database contained indexes that made it easy to find residues at structurally equivalent positions in different domains, thus making it convenient to explore structural hypotheses. However, constructing these indexes by hand was a slow and inconvenient process, so we now seek to automate this task as we extend the database to include additional immunoglobulin domains. Earlier structural studies of antibody VH and VL variable domains [Chothia and Lesk, 1987] and T-cell receptor variable domains [Chothia et al., 1988] identified template β − sheet framework patterns based on conserved main chain hydrogen bond

1 Objective and Structure of the Report............................................................................... 7

Abstract: This paper argues that the consequences of the ‘fragmentation ’ of the European patent system are more dramatic than the mere prohibitive costs of maintaining a patent in force in many jurisdictions. First, detailed analysis of judicial systems in several European countries and four case studies provide evidence suggesting that heterogeneous national litigation costs, practices and outcome induce a high level of uncertainty. Second, a high degree of managerial complexity results from systemic incongruities due to easier ‘parallel imports’, possible ‘time paradoxes ’ and the de facto paradox of having EU-level competition policy and granting authority ultimately facing national jurisdictional primacy on patent issues. These high degrees of uncertainty and complexity contribute to reduce the effectiveness of the European patent system and provide additional arguments in favour of the Community patent and a centralized litigation in Europe.

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of data. All errors are those of the authors. 2