Edited by Joseph E. Harrington Jr and Yannis Katsoulacos
3. The economics of pending patents Johannes Koenen and Martin Peitz1 3.1 INTRODUCTION Imagine yourself playing chess with an acquaintance, with whom you are not necessarily friendly, so that the outcome of the game matters to you. Your acquaintance bought the board and pieces, and as a compensation for his investment, you agree that you are not allowed to use your left bishop for the first 20 moves – if you do, your opponent may appeal to a referee who will dole out an expensive punishment to you. The rules are clear: you are at a disadvantage which your opponent has earned through his prior investment. In the course of the first 20 moves of the game, your immobilized figure may become redundant, as the focus of the game has shifted elsewhere, or it may even be removed from the board by a move of your adversary. It will almost definitely burden the progress of your other figures that you are trying to develop. Now picture the same situation with just a slight twist: for the first couple of moves, you do not know which figure it is that you are not allowed to touch. Which situation would a strategic player prefer to be in? The former setting resembles the way the patent system is generally understood by lawmakers, the press and many academics up until now: patents encourage innovation by awarding a clearly defined (by the claims in the patent document), temporary (20 years from the date of application) strategic...
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