Economics of the Independent Invention Defense under Incomplete Information

Document Type

Article

Publication Date

1-2012

Journal Title

Supreme Court Economic Review

ISSN

0736-9921

DOI

10.1086/668519

Abstract

Patents lead to ex post deadweight loss arising from a noncompetitive market structure for the invention. Many have argued that introducing independent invention as a defense (IID) to patent infringement can increase social welfare by decreasing such deadweight loss at the price of a modest decrease in the number of inventions. This paper considers the effects of IID in a setting where R&D firms have incomplete information about their rivals. Four main results follow under incomplete information: (i) fewer things are invented under an IID regime; (ii) IID's effects on welfare are ambiguous; (iii) IID is more likely to increase welfare if gains from competition in the product market are high; and (iv) determining precise conditions under which IID performs better than the current regime requires access to data that are extremely hard to find and quantify.

First Page

183

Last Page

203

Num Pages

21

Volume Number

20

Publisher

University of Chicago Press

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