The Good and the Bad of Sharing Patents

INCREASINGLY, RD IS A COLLABORATIVE EFFORT BETWEEN COMPANIES, IN ORDER TO LIMIT THE HIGH RISK AND HUGE COST OF NEW RESEARCH ENDEAVORS. HOWEVER A STUDY SHOWS THAT COPATENTING CAN HAVE ADVERSE CONSEQUENCES, BECAUSE UNLIMITED LICENSING RIGHTS CAN DISCOURAGE JOINT RESEARCH PROJECTS

by Andrea Fosfuri, Dept. of Management and Technology, Bocconi
Translated by Alex Foti


We often hear about co-ownership for holiday apartments and beach condos, where co-owners get to spend set periods of time in the shared property. In general, the concept of co-ownership of tangible assets is quite common acrosss individuals and organizations. Co-ownership of intangibles, such as innovation, is less well known. However the trend is now widespread among innovative companies to jointly develop research initiatives, both to reduce the risk and size of investments, and to benefit from complementarity in resources and knowledge.

In a research study done in collaboration with Christian Helmers (Santa Clara University) and Catherine Roux (University of Basel), forthcoming in The Journal of Legal Studies under the title “Shared Ownership of Intangible Property Rights: The Case of Patent Co-Assignments”, I analyzed the specific case of patent co-ownerships, i.e. when a given patent is assigned to two or more companies.

In general, despite the increasing importance of collaborations in R&D, companies make limited use of co-owned patents. On the face of it, co-ownership of the patent would seem to be the logical consequence of the joint effort done by the companies to support the common innovative process. From a legal point of view, there are few restrictions placed on the use of a tangible asset by a co-owner, such as for instance selling a share of an apartment or a company. In theory, in the case of intangible assets, co-ownership should generate even fewer problems, since the use by a co-owner is non-rival with respect to other co-owners. But in our paper, we show the opposite to be true: co-ownership of intangible assets can have important implications because the commercial exploitation of an innovation generates market competition. In certain cases, intellectual co-ownership can lead to a "tragedy of the commons", a situation in which every co-owner has an incentive to unsustainably exploit the common resource.

To study the phenomenon, we looked at patents co-assigned to legally independent organizations. In particular, to offer causal evidence and go beyond simply proving correlation, we have exploited exogenous differences existing between the rights of patent co-owners in the United States as compared to Europe. In the United States, a patent’s co-owner can license it without the authorization of the other co-owners, regardless of whether such licensing agreements can harm them. In Europe, however, patent co-owners get to have the final say on any decision regarding licensing agreements. More precisely, in our study we made use of patents that are registered simultaneously in the US and in the EU. For these innovations, there are no unobserved differences other than the fact that under the US jurisdiction the licensing of a patent can be the result of a co-owner’s unilateral decision.

Our analyses show that a large number of patents, over 20,000 in the 1990-2000 period, were not co-assigned due to the risk unilateral licensing by co-owners in the United States. Furthermore, we found that collaborating companies avoid patent co-ownership when they compete in product markets. Lastly, given that co-owned patents improve the scientific quality of research collaborations, the fact that companies avoid co-owned patents can have a negative impact on the value created by the collaboration itself.

In a world where innovation is increasingly the result of collaborations between various organizations, it becomes critical to provide adequate legal tools to encourage joint efforts. Our study shows that the co-patenting without limitations with respect to commercial licencing, instead of promoting the spread of innovation, does in fact generate complications that lead companies to limit the scope of patent collaborations or even avoid them altogether.