Book Introduction : Innovators, Firms, and Markets: The Organizational Logic of Intellectual Property

It is generally assumed that stronger intellectual property protections have adverse competitive effects by raising entry costs and shielding incumbents. This book identifies a significant range of circumstances in which stronger IP protections lower entry costs for innovators who have robust R&D capacities but lack the capital and commercialization expertise required to challenge incumbents that enjoy existing financing, production and distribution infrastructures. This analytical framework, which integrates the costs of information exchange into the theory of the firm, is applied through a novel “organizational” history and political economy of the U.S. patent system (including patent-related antitrust enforcement) from 1890 to 2006. Both theory and empirics suggest that stronger patent regimes yield efficiency gains by maximizing organizational choice and enabling innovators to pursue contractual and other less integrated structures for converting R&D investments into commercially viable products. Weaker patent regimes yield efficiency losses by skewing firms’ organizational choices toward more integrated structures that substitute internal for external information and capital markets. Consistent with these proposed relationships between IP strength and organizational form, evidence on lobbying and advocacy activities shows that, outside biopharmaceuticals, larger firms that pursue systems-based and other integrated commercialization strategies have tended to disfavor stronger forms of patent protection. The opposite tends to be the case for R&D-intensive entities that rely on less integrated structures to extract value from innovation investments. This extended organizational and political-economic history of the U.S. patent system challenges conventional assumptions concerning the relationship between intellectual property rights and competitive markets