Demsetz Goes Digital: Innovation, Rent-seeking, and Patent Law Reform

Intellectual Property and Patents

Article Snapshot


Robert Merges


Searle Research Symposium on Property Rights Economics and Innovation Research Paper, November 2008


This paper asks when courts should re-interpret patent law to control opportunists.

Policy Relevance

Courts should take use extend existing ideas on patent case law to stop patent “trolls,” as patent reform is unlikely to be passed by Congress.

Main Points

  • Demsetz’s  theory of property rights showed how they adapt to solve different types of economic problems. But he did not offer details on the process of adjustment.

  • The patent system in the United States has sometimes faced problems with opportunists, who acquire low-quality patents without contributing any real innovation, and profit from litigation.
    • Example include the “patent sharks” who caused problems for family farmers in the nineteenth century, and, later, railroad patent opportunists.
    • In these cases, the courts were able to resolve the problem by fine-tuning ideas in patent case law.

  • Today, many observers are concerned about “patent trolls,” who buy up patents to profit from litigation or licensing revenues, without furthering innovation. Universities increasingly focus on licensing revenue rather than research.

  • These “trolls” are like blackmailers: they raise costs without producing anything of value. Little harm would be done by eliminating this market.

  • It is unlikely that patent reform will come about through legislation, because many firms lobby against it, and the United States legislature makes it easy to stop controversial laws from being passed.

  • Cases such as the recent Supreme Court case involving eBay, which makes it harder for patent owners to get an injunction interfering with another firm's business, show that the courts will be able to refine patent law to cut back on trolls.

Get The Article

Find the full article online

Search for Full Article