Scandinavian Working Papers in Economics

Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

No 229: THE PROBLEM OF TRADING PATENTS IN ORGANIZED MARKETS: A dynamic experimental microeconomic system model and informal price theory

Eskil Ullberg ()
Additional contact information
Eskil Ullberg: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden

Abstract: We are well familiar with the economic analysis of a patent system in terms of a temporary monopoly on products, benefitting from marginal process inventions, formulated under conditions of certain future demands. This article develops an experimental and dynamic microeconomic model useful for studying the patent system as a trade system, where patented technology is exchanged in organized competitive markets, under uncertain future demands. An economic system design is developed to study transparent prices of patents, dynamic gains from using a patent in multiple industries and the coordination of invention, intermediary and innovation activities using a linear contract on patents (fixed fee plus royalty on revenues). A trader is introduced together with inventor and innovator agents in order to multiply the value (use) of the technology. Three mechanism designs and two levels of presumption of validity of the underlying patent right are proposed. The analysis differs from previous work on patents, trade and economics in that the focus is on the competitive pricing of the rights themselves, using demand side bidding. An informal theory is outlined to price the dual values of a patent (investing and blocking). Based on this proposition tentative hypothesis are outlined for two initial experiments using the outlined economic system design.

Keywords: patents; organized markets; trade; licensing; technology

JEL-codes: D02; D23; L14; L24; O32; O34

24 pages, August 25, 2010

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