Strategic patenting decisions in the European pharmaceutical industry: the use of divisional applications and follow-on patenting practices

Abstract

Merges and Nelson have suggested that effective innovation is best achieved through competition, arguing that, in the absence of rivalry, the far-reaching monopolistic rights awarded to patent owners could lead to stagnation of innovation. 1 The necessity for measures that preserve competition arises due to the social trade-off of patents, which resonates in the deadweight loss associated with monopoly-like exclusive rights. 2 As Carl Shapiro noted, [t]he Research and Development begins with the letter R where the royalty is often nothing more than a citation but when the designing of a patent portfolio moves on to phase D then it is proper to ask whether legal (and commercial) institutions are properly designed to promote rather than discourage innovation that draw on many strands of innovation considering that blocking patents indeed play the role of the pyramid's building blocks. 3 The granting of a high number of patents brings about the danger of imposing unnecessary drag on innovation, creating clusters and thickets 4 that make it very hard for competitors to invent around the patents. Further, when property rights are used excessively, resources are actually underused. 5 Situations of this kind can arise due to strategic choices made by the patentee at various stages of the development of new products: for example, wide-scope patent portfolios can be built either through early patenting in case of uncertainties surrounding scientific advances or on-going research efforts in a nascent field, or through follow-on patenting aimed at preserving the domain of exclusivity in spite of modest technological advancements. 6 These strategic choices are capable of discouraging competing actors from investing and innovating, due to the actual risk of stepping on what Shapiro calls a patent ‘land mine’. 7