Shadow Patent Systems: Technology, Economics, and Geopolitics

Abstract

Patents are territorial instruments of exclusion structurally analogous to a protectionist trade barrier -- not affirmative rights or knowledge that can be treated as simple economic inputs. Digital technology has posed problems because of the vast number of patents, their presence in global standards, their indeterminate aspects, and the cost of disputes. While these problems are acknowledged, they are obscured by the lack of data on business practices and the confidentiality agreements that hide licensing transactions. Patents are published, but the use of patents remains secret, and the secondary markets that provide fuel for speculators and assertion specialists remain dark. At the same time, high-profile litigation in the smartphone wars has focused attention on international differences in the political economy of patent practice.Although different patent systems have their own issues, the impact of digital patents is felt in other domains. For example, by contractually committing standards participants to licensing their patents on fair, reasonable and nondiscriminatory (FRAND) terms, standards development organizations have opened patent practice to a new forms of economic scrutiny. While TRIPS sets out minimum standards for individual patents, it does not address limits on private behavior, state investment in patents, or how “applicant-friendly” a national patent regime may be. Beyond TRIPS and certain bilateral/plurilateral agreements, states are free to design patent systems that favor national champions, regulatory incumbents, giant aggregators, or institutions that discriminate de facto against imports or foreign litigants. Neighboring domains such as innovation policy, competition policy, and sovereign investment lack institutional frameworks for harmonization, and the discussion venues that exist are expected to remain inside their silos. Instead, patent policy has devolved into assorted ad hoc policies and strategies guided by anecdotal evidence and appeals to competitiveness and national advantage.