SHARED PATENT RIGHTS AND TECHNOLOGICAL PROGRESS

We study how to reward innovators who build on one another. Rewards come in the form of patents. Because patent rights are scarce, the optimal allocation involves sharing: More than one innovator's patent is in force at a given time. We interpret such allocations as patents that infringe one another as licensing through an ever growing patent pool and as randomization through litigation. We contrast the rate of technological progress under the optimal allocation with the outcome if sharing is prohibitively costly. Avoiding sharing initially slows progress and leads to a more variable rate of technological progress.