Essays on intellectual property rights policy

Abstract

This dissertation will take a theoretical approach to analyzing certain challenges in the design of intellectual property rights (`IPR') policy. The first essay looks the advisability of introducing IPR into a market which is currently only very lightly protected - the US fashion industry. The proposed Innovative Design Protection and Piracy Prevention Act is intended to introduce EU standards into the US. Using a sequential, 2-firm, vertical differentiation framework, I analyze the effects of protection on investment in innovative designs by high-quality (`designer') and lower-quality (`mass-market') firms when the mass-marketer may opt to imitate, consumers prefer trendsetting designs and firms compete in prices. I show that design protection, by transforming mass-marketers from imitators to innovators, may reduce both designer pro ts and welfare.

The model provides possible explanations for the dearth of EU case law and the increase in designer/mass-marketer collaborations. The second essay contributes to the literature on patent design and fee shifting, contrasting the effects of the American (or 'each party pays') rule and English (or `losing party pays') rule of legal cost allocation on optimal patent breadth when innovation is sequential and firms are differentiated duopolists. I show that if litigation spending is endogenous, the American rule may induce broader patents and a higher probability of infringement than the English rule if R&D costs are sufficiently low. If, however, R&D costs are moderate, the ranking is reversed and it is the English rule that leads to broader patents. Neither rule supports lower patent breadth than the other over the entire parameter space. As such, any attempts to reform the US patent system by narrowing patents must carefully weigh the impact on firms' legal spending decisions if policymakers do not wish to adversely affect investment incentives. The third and final essay analyzes the effects of corporate structure on licensing behaviour. Policymakers and legal scholars are concerned about the potential for an Anticommons, an underuse of early stage research tools to produce complex final products, typically arising from either blocking or stacking. I use a simple, one-period differentiated duopoly model to show that if patentees have flexibility in corporate structure, Anticommons problems are greatly reduced. The model suggests that if the patentee owns the single (or single set) of essential IPR and goods are of symmetric quality, Anticommons issues may be entirely eliminated, as the patentee will always license, simply shifting its corporate structure depending on the identity of the downstream competitor. If the rival produces a more valuable good, Anticommons problems are reduced. Further, if the patentee holds 1 of 2 essential patents, the ability to shift its corporate structure may reduce total licensing costs to rival firms.

However the analysis offers a cautionary note: while spin-offs by the patentee help to sustain downstream competition, they may restrict market output, and therefore welfare. Thus the inefficiency in the patent system may be in the opposite direction than is currently thought - there may be too much technology transfer, rather than too little.