Study: Sharing Patents, Rather Than Blocking Others, Encourages Innovation And Market Success

from the well-duh dept

There's been plenty of research over the years (much of which we've pointed to here) showing that the sharing of information and knowledge -- including information and knowledge that leads to innovation breakthroughs -- can actually help companies thrive. Studies on the early success of Silicon Valley by Annalee Saxenian focus heavily on how information sharing among companies -- even those in competition with each other -- helped make Silicon Valley so successful. That's because the breakthroughs opened up new markets and expanded them in ways that allowed multiple players to thrive. To put it another way: if, by sharing information, companies were able to reach major market-changing breakthroughs faster, there would be more than enough benefit to go around as the new markets expanded. Thus, the "cost" of having competitors with the same knowledge was dwarfed by the "benefit" of having the innovation and the resulting market expansion.

Gene Cavanaugh points us to a new study that appears to reiterate this basic point, but focusing directly on situations with patents. The research, by economist Gilad Sorek, found that the free-licensing of patents to competitors actually increases the likelihood that a company's profits will grow as the result of a particular innovation. In other words, contrary to what many believe (that the best thing to do with a patent is to restrict others from using it), this research suggests that openly sharing that information for free actually tends to help the patent holder in the long run by opening up new opportunities that increase their profit.

The study, to be published in a forthcoming issue of Economics Letters, shows that the benefits of giving up patent protection outweigh the risks of surrendering a share of the market. By inviting further research, Sorek says, the original innovator is able to stimulate demand for its product. The company may lose a share of the market, but its product ultimately becomes more valuable as a result of the extended innovation effort.

The research points out that such open and free licensing acts as a way to get free research and development from other companies that help expand the original innovator's market. This paper certainly seems to match what we've seen in other research in the past and, yet again, raises significant questions about the way many companies today manage their patent portfolios, as well as how they view the process of innovation itself.

Filed Under: economics, free license, gilad sorek, silicon valley, study