1. Incentive Theory of Intellectual Property William Fisher June 22, 2004 © 2004. All rights reserved.

2. Intellectual Products are “Public Goods” Can be used and enjoyed by an infinite number of persons without being “used up” It is difficult to exclude people from access to the good Creates a danger that an inefficiently low number of such goods will be produced

3. Possible Responses to Public-Goods Problem (1) Government provides the good -- e.g., lighthouses; armed forces (2) Government subsidizes production of the activity -- e.g., NIH funding for basic scientific research; NEA (3) Government issues prizes -- e.g., X-prize and associated shift in NASA policy -- e.g., compensated expropriation of patents (4) Government confers monopoly power on producers -- e.g., 19th c. toll roads; intellectual-property rights (5) Government assists private parties in increasing “excludability” -- trade-secret law; “direct molding” prohibitions; anti- circumvention laws

4. Improved Knee Brace

10. Economic Conditions Created by the Grant of a Patent $ Quantity

11. Economic Conditions Created by the Grant of a Patent $ Quantity Marginal Cost

12. Economic Conditions Created by the Grant of a Patent $ Quantity Marginal Cost Willingness and ability to pay of consumer X P(X) X

13. Economic Conditions Created by the Grant of a Patent $ Quantity P(Y) Y Marginal Cost Willingness and ability to pay of consumer Y P(X) X

14. Economic Conditions Created by the Grant of a Patent $ Quantity P(Y) Y Marginal Cost Willingness and ability to pay of consumer Z P(X) X P(Z) Z

15. Economic Conditions Created by the Grant of a Patent $ Quantity P(Y) Y Marginal Cost Demand Aggregate Consumer Demand P(X) X P(Z) Z

16. Economic Conditions Created by the Grant of a Patent $ Quantity P(Y) Y Marginal Cost Demand In the absence of patent, copying and competition will drive the price down close to marginal cost P(X) X P(Z) Z

17. Economic Conditions Created by the Grant of a Patent $ Quantity P(Y) Y Marginal Cost Demand In the absence of patent, copying and competition will drive the price down close to marginal cost P(X) X P(Z) Z

18. Economic Conditions Created by the Grant of a Patent $ Quantity P(Y) Y Marginal Cost Demand In the absence of patent, copying and competition will drive the price down close to marginal cost P(X) X P(Z) Z

19. Economic Conditions Created by the Grant of a Patent $ Quantity P(Y) Y Marginal Cost Demand In the absence of patent, copying and competition will drive the price down close to marginal cost P(X) X P(Z) Z

20. Economic Conditions Created by the Grant of a Patent $ Quantity P(Y) Y Marginal Cost Demand In the absence of patent, copying and competition will drive the price down close to marginal cost P(X) X P(Z) Z

21. Economic Conditions Created by the Grant of a Patent $ Quantity P(Y) Y Marginal Cost Demand In the absence of patent, copying and competition will drive the price down close to marginal cost P(X) X P(Z) Z

22. Economic Conditions Created by the Grant of a Patent $ Quantity P(Y) Y Marginal Cost Demand In the absence of patent, copying and competition will drive the price down close to marginal cost P(X) X P(Z) Z

23. Economic Conditions Created by the Grant of a Patent $ Quantity P(Y) Y Marginal Cost Demand In the absence of patent, copying and competition will drive the price down close to marginal cost P(X) X P(Z) Z

24. Economic Conditions Created by the Grant of a Patent $ Quantity P(Y) Y Marginal Cost Demand In the absence of patent, copying and competition will drive the price down close to marginal cost P(X) X P(Z) Z

25. Economic Conditions Created by the Grant of a Patent $ Quantity P(Y) Y Marginal Cost Demand P(X) X P(Z) Z Q In the absence of patent, copying and competition will drive the price down close to marginal cost

26. Economic Conditions Created by the Grant of a Patent $ Quantity P(Y) Y Marginal Cost Demand In the absence of patent, copying and competition will drive the price down close to marginal cost P(X) X P(Z) Z Resultant Consumer Surplus Q

27. Economic Conditions Created by the Grant of a Patent $ Quantity P(Y) Y Marginal Cost Demand P(X) X P(Z) Z Q In the absence of patent, copying and competition will drive the price down close to marginal cost

28. Economic Conditions Created by the Grant of a Patent $ Quantity P(Y) Y Marginal Cost Demand P(X) X P(Z) Z

29. Economic Conditions Created by the Grant of a Patent $ Quantity P(Y) Y Marginal Cost Demand P(X) X P(Z) Z Profit-Maximizing Behavior by a Patentee who can engage in perfect price discrimination

30. Economic Conditions Created by the Grant of a Patent $ Quantity P(Y) Y Marginal Cost Demand P(X) X P(Z) Z Profit-Maximizing Behavior by a Patentee who can engage in perfect price discrimination

31. Economic Conditions Created by the Grant of a Patent $ Quantity P(Y) Y Marginal Cost Demand Profit-Maximizing Behavior by a Patentee who can engage in perfect price discrimination P(X) X P(Z) Z Profit-maximizing output “Monopoly Profits”

32. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand C G H Marginal Cost O A I In the absence of Price Discrimination

33. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand C G H Marginal Cost O A I p In the absence of Price Discrimination

34. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand C G H Marginal Cost O A I p u In the absence of Price Discrimination

35. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand C G H Marginal Cost O A I p u Revenues In the absence of Price Discrimination

36. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand C G H Marginal Cost O A I p u Costs In the absence of Price Discrimination

37. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand C G H Marginal Cost O A I p u Profits In the absence of Price Discrimination

38. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand C G H Marginal Cost O A I p u In the absence of Price Discrimination

39. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand C G H Marginal Cost O A I p u q In the absence of Price Discrimination

40. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand C G H Marginal Cost O A I p u q v In the absence of Price Discrimination

41. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand C G H Marginal Cost O A I p u q v Revenue loss In the absence of Price Discrimination

42. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand C G H Marginal Cost O A I p u q v Revenue loss Revenue gain In the absence of Price Discrimination

43. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand C G H Marginal Cost O A I p u q v Profits In the absence of Price Discrimination

44. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand C G H Marginal Cost O A I p u q v r In the absence of Price Discrimination

45. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand C G H Marginal Cost O A I p u q v r w In the absence of Price Discrimination

46. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand C G H Marginal Cost O A I p u q v r w Revenue loss In the absence of Price Discrimination

47. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand C G H Marginal Cost O A I p u q v r w Revenue loss Revenue gain In the absence of Price Discrimination

48. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand C G H Marginal Cost O A I p u q v r w Profit In the absence of Price Discrimination

49. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand C G H Marginal Cost O A I In the absence of Price Discrimination

50. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand C G H Marginal Cost Marginal Revenue O A I In the absence of Price Discrimination

51. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand B C D E F G H Marginal Cost Marginal Revenue O A I In the absence of Price Discrimination

52. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand B C D E F G H Marginal Cost Profit-maximizing output Profit-maximizing price Marginal Revenue O A I In the absence of Price Discrimination

53. Figure 1: Profit-Maximizing Behavior by a Patentee $ Quantity Demand B C D E F G H Marginal Cost Profit-maximizing output Profit-maximizing price Monopoly Profits Marginal Revenue O A I 1 In the absence of Price Discrimination

54. Figure 2: Economic Effects of Profit-Maximizing Behavior by a Patentee $ Quantity Demand B C D E F G H Marginal Cost Profit-maximizing output Profit-maximizing price Monopoly Profits O A I 1 2 Consumer Surplus

55. Figure 2: Economic Effects of Profit-Maximizing Behavior by a Patentee $ Quantity Demand B C D E F G H Marginal Cost Profit-maximizing output Profit-maximizing price Monopoly Profits O A I 1 2 3 Consumer Surplus Deadweight Loss (foregone consumer surplus) E

56. Applications of Reward Theory Assessing the merits and demerits of partial price discrimination Assessing the merits and demerits of compulsory licenses Determining the Optimal Pattern of Entitlements (possible in theory, not in practice) Posner’s “positive” account of extant doctrine

57. Applications of Reward Theory Assessing the merits and demerits of partial price discrimination Assessing the merits and demerits of compulsory licenses Determining the Optimal Pattern of Entitlements (possible in theory, not in practice) Posner’s “positive” account of extant doctrine

58. Partial Price Discrimination $ Quantity Marginal Cost O

59. Partial Price Discrimination $ Quantity w Marginal Cost uvxy O Discrete markets

60. Partial Price Discrimination $ Quantity w Marginal Cost uvxy Monopoly Profits p O

61. Partial Price Discrimination $ Quantity w Marginal Cost uvxy Monopoly Profits p q O

62. Partial Price Discrimination $ Quantity w Marginal Cost uvxy Monopoly Profits p q r O

63. Partial Price Discrimination $ Quantity w Marginal Cost uvxy Monopoly Profits p q r s O

64. Partial Price Discrimination $ Quantity w Marginal Cost uvxy Monopoly Profits p q r s t O

65. Illustrations of Price Discrimination Techniques “Second Degree”: Offer 2 models: –Regular for $250 –Premium (carbon-fiber) for $500 “Third Degree”: Price varies by zip code of purchaser’s residence

66. 01234567 Time in Years Syndication Network TV Foreign TV Pay TV Home Video Pay per view Foreign Theatrical Domestic Theatrical Figure 2.4: Market Windows from Release Date

67. Example of Partial Price Discrimination $ Quantity D 3 G Marginal Cost 12 4 5 Licensing first-runs in movie theatres Licensing for pay-per-view Licensing for home video rental Licensing for network broadcast Licensing for local broadcasts

68. Figure 3: Economic Impact of Partial Price Discrimination $ Quantity D w Marginal Cost uvxy Consumer Surplus Monopoly Profits 1 2 p q r s t O

69. Figure 3: Economic Impact of Partial Price Discrimination $ Quantity D w Marginal Cost uvxy Deadweight Loss Consumer Surplus Monopoly Profits 1 3 2 p q r s t O

70. Figure 3: Economic Impact of Partial Price Discrimination $ Quantity D Marginal Cost Deadweight Loss Consumer Surplus Monopoly Profits 1 3 2 O

71. $ Quantity E Marginal Cost O 1 2 3 E Consumer Surplus Monopoly Profits Deadweight Loss Figure 2: No Price Discrimination

72. Effects of Partial Price Discrimination on Consumer Surplus No price discrimination Partial Price Discrimination Relative Size of the Surpluses depends on how finely the copyright owner can slice up the market

73. Effects of Partial Price Discrimination  Enables Creators to Make More Money  Reduces deadweight loss  Indeterminate impact on consumer surplus  Increases ratio between incentive for creativity and deadweight loss -- thus enhances net consumer welfare  Increases the likelihood that all persons will have access to works of the intellect  Increases Transaction Costs  Distortions caused by 2 nd degree PD  Possible invasions of privacy  Possible threat to cumulative innovation alternatives

74. Applications of Reward Theory Assessing the merits and demerits of partial price discrimination Assessing the merits and demerits of compulsory licenses Determining the Optimal Pattern of Entitlements (possible in theory, not in practice) Posner’s “positive” account of extant doctrine

75. Applications of Reward Theory Assessing the merits and demerits of partial price discrimination Assessing the merits and demerits of compulsory licenses Determining the Optimal Pattern of Entitlements (possible in theory, not in practice) Posner’s “positive” account of extant doctrine

76. Figure 2: Economic Effects of Profit-Maximizing Behavior by a Patentee $ Quantity Demand E Marginal Cost Profit-maximizing output Profit-maximizing price Monopoly Profits Consumer Surplus Deadweight Loss (foregone consumer surplus)

77. Figure 2: Economic Effects of Profit-Maximizing Behavior by a Patentee $ Quantity Demand E Marginal Cost Profit-maximizing output Profit-maximizing price Monopoly Profits Deadweight Loss (foregone consumer surplus)

78. Figure 2: Economic Effects of Profit-Maximizing Behavior by a Patentee $ Quantity Demand Marginal Cost Profit-maximizing output Profit-maximizing price Monopoly Profits

79. Figure 2: Economic Effects of Profit-Maximizing Behavior by a Patentee $ Quantity Demand Marginal Cost Profit-maximizing output Profit-maximizing price Monopoly Profits Force Patentee to License the work for reduced fee

80. Figure 2: Economic Effects of Profit-Maximizing Behavior by a Patentee $ Quantity Demand Marginal Cost Profit-maximizing output Monopoly Profits Force Patentee to License the work for reduced fee

81. Figure 2: Economic Effects of Profit-Maximizing Behavior by a Patentee $ Quantity Demand E Marginal Cost Profit-maximizing output Force Patentee to License the work for reduced fee

82. Economic Impact of a Compulsory Licensing System $ Quantity Demand D Marginal Cost License Fee Monopoly Profits

83. Economic Impact of a Compulsory Licensing System $ Quantity Demand D Marginal Cost License Fee Monopoly Profits Deadweight Loss

84. Economic Impact of a Compulsory Licensing System $ Quantity Demand D Marginal Cost License Fee Monopoly Profits Deadweight Loss Consumer Surplus

85. Effects of Compulsory Licensing on Consumer Surplus No price regulation Compulsory license Advantages of the Compulsory license will be offset, at least partially, by administrative costs

86. Effects of Compulsory Licensing on Incentive to Loss Ratio Reduce monopoly profits moderately Reduce deadweight loss substantially Increase administrative costs May increase the overall ratio

87. Applications of Reward Theory Assessing the merits and demerits of partial price discrimination Assessing the merits and demerits of compulsory licenses Determining the Optimal Pattern of Entitlements (possible in theory, not in practice) Posner’s “positive” account of extant doctrine

88. Applications of Reward Theory Assessing the merits and demerits of partial price discrimination Assessing the merits and demerits of compulsory licenses Determining the Optimal Pattern of Entitlements (possible in theory, not in practice) Posner’s “positive” account of extant doctrine

89. Determining Optimal Levels of Patent Protection

90. (1)Ascertain the incentive/loss ratio for each of the set of possible entitlements

91. Determining Optimal Levels of Patent Protection (1)Ascertain the incentive/loss ratio for each of the set of possible entitlements B 58/25=2.32

92. Determining Optimal Levels of Patent Protection (1)Ascertain the incentive/loss ratio for each of the set of possible entitlements B C 58/25=2.3217/8=2.13

93. Determining Optimal Levels of Patent Protection (1)Ascertain the incentive/loss ratio for each of the set of possible entitlements B E C 58/25=2.3217/8=2.1375/108=0.69

94. Determining Optimal Levels of Patent Protection (1)Ascertain the incentive/loss ratio for each of the set of possible entitlements B D E C 58/25=2.3217/8=2.1375/108=0.69100/92=1.09

95. Determining Optimal Levels of Patent Protection (1)Ascertain the incentive/loss ratio for each of the set of possible entitlements B A D E C 58/25=2.3217/8=2.1375/108=0.69100/92=1.0975/17=4.41

96. Determining Optimal Levels of Patent Protection (1)Ascertain the incentive/loss ratio for each of the set of possible entitlements (2)Arrange them from highest ratio to lowest B A D E C 58/25=2.3217/8=2.1375/108=0.69100/92=1.0975/17=4.41

97. Determining Optimal Levels of Patent Protection (1)Ascertain the incentive/loss ratio for each of the set of possible entitlements (2)Arrange them from highest ratio to lowest B A D E C 58/25=2.3217/8=2.1375/108=0.69100/92=1.09 75/17=4.41

98. Determining Optimal Levels of Patent Protection (1)Ascertain the incentive/loss ratio for each of the set of possible entitlements (2)Arrange them from highest ratio to lowest (3)Plot the sequence on a graph so that the line corresponding to aggregate reward is linear B A D E C 58/25=2.3 2 17/8=2.1375/108=0.6 9 100/92=1.0 9 75/17=4.4 1

99. (no patent protection) Determining Optimal Levels of Patent Protection

100. (no patent protection) Determining Optimal Levels of Patent Protection Reward to Producers In the absence of any patent protection

101. Aggregate Reward to Producers caused by forbidding each successive use (no patent protection) Determining Optimal Levels of Patent Protection Reward to Producers In the absence of any patent protection

102. A Aggregate Reward to Producers caused by forbidding each successive use (no patent protection) Determining Optimal Levels of Patent Protection 75 Reward to Producers In the absence of any v protection

103. A B Aggregate Reward to Producers caused by forbidding each successive use (no patent protection) Determining Optimal Levels of Patent Protection 58 75 Reward to Producers In the absence of any patent protection

104. A B C Aggregate Reward to Producers caused by forbidding each successive use (no patent protection) Determining Optimal Levels of Patent Protection 17 58 75 Reward to Producers In the absence of any patent protection

105. A B C D Aggregate Reward to Producers caused by forbidding each successive use (no patent protection) Determining Optimal Levels of v Protection 100 17 58 75 Reward to Producers In the absence of any patent protection

106. A B C D E Aggregate Reward to Producers caused by forbidding each successive use (no patent protection) Determining Optimal Levels of Patent Protection 75 100 17 58 75 Reward to Producers In the absence of any patent protection

107. A B C D E Aggregate Reward to Producers caused by forbidding each successive use (no patent protection) Determining Optimal Levels of Patent Protection

108. Determining Optimal Levels of Patent Protection (1)Ascertain the incentive/loss ratio for each of the set of possible entitlements (2)Arrange them from highest ratio to lowest (3)Plot the sequence on a graph so that the line corresponding to aggregate reward is linear

109. Determining Optimal Levels of Patent Protection (1)Ascertain the incentive/loss ratio for each of the set of possible entitlements (2)Arrange them from highest ratio to lowest (3)Plot the sequence on a graph so that the line corresponding to aggregate reward is linear (4)Plot the corresponding levels of aggregate social loss

110. A B C D E Aggregate Reward to Producers caused by forbidding each successive use (no patent protection) Determining Optimal Levels of Patent Protection

111. A B C D E (no patent protection) Determining Optimal Levels of Patent Protection

112. A B C D E Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Determining Optimal Levels of Patent Protection

113. A B C D E Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Determining Optimal Levels of Patent Protection

114. A B C D E Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Determining Optimal Levels of Patent Protection

115. A B C D E Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Determining Optimal Levels of Patent Protection

116. A B C D E Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Determining Optimal Levels of Patent Protection

117. A B C D E Aggregate Reward to Producers caused by forbidding each successive use Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Determining Optimal Levels of Patent Protection

118. Determining Optimal Levels of Patent Protection (1)Ascertain the incentive/loss ratio for each of the set of possible entitlements (2)Arrange them from highest ratio to lowest (3)Plot the sequence on a graph so that the line corresponding to aggregate reward is linear (4)Plot the corresponding levels of aggregate social loss

119. Determining Optimal Levels of Patent Protection (1)Ascertain the incentive/loss ratio for each of the set of possible entitlements (2)Arrange them from highest ratio to lowest (3)Plot the sequence on a graph so that the line corresponding to aggregate reward is linear (4)Plot the corresponding levels of aggregate social loss (5)Plot the efficiency gains associated with each increase in aggregate reward

120. A B C D E Aggregate Reward to Producers caused by forbidding each successive use Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Determining Optimal Levels of Patent Protection

121. A B C D E Aggregate Reward to Producers caused by forbidding each successive use Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Efficiency Gains caused by increased productivity induced by each level of reward Determining Optimal Levels of Patent Protection

122. A B C D E Aggregate Reward to Producers caused by forbidding each successive use Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Efficiency Gains caused by increased productivity induced by each level of reward Determining Optimal Levels of Patent Protection

123. A B C D E Aggregate Reward to Producers caused by forbidding each successive use Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Efficiency Gains caused by increased productivity induced by each level of reward Determining Optimal Levels of Patent Protection

124. A B C D E Aggregate Reward to Producers caused by forbidding each successive use Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Efficiency Gains caused by increased productivity induced by each level of reward Determining Optimal Levels of Patent Protection

125. A B C D E Aggregate Reward to Producers caused by forbidding each successive use Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Efficiency Gains caused by increased productivity induced by each level of reward Determining Optimal Levels of Patent Protection

126. A B C D E Aggregate Reward to Producers caused by forbidding each successive use Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Efficiency Gains caused by increased productivity induced by each level of reward Determining Optimal Levels of Patent Protection

127. Determining Optimal Levels of Patent Protection (1)Ascertain the incentive/loss ratio for each of the set of possible entitlements (2)Arrange them from highest ratio to lowest (3)Plot the sequence on a graph so that the line corresponding to aggregate reward is linear (4)Plot the corresponding levels of aggregate social loss (5)Plot the efficiency gains associated with each increase in aggregate reward

128. Determining Optimal Levels of Patent Protection (1)Ascertain the incentive/loss ratio for each of the set of possible entitlements (2)Arrange them from highest ratio to lowest (3)Plot the sequence on a graph so that the line corresponding to aggregate reward is linear (4)Plot the corresponding levels of aggregate social loss (5)Plot the efficiency gains associated with each increase in aggregate reward (6)Plot difference between top and bottom lines

129. A B C D E Aggregate Reward to Producers caused by forbidding each successive use Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Efficiency Gains caused by increased productivity induced by each level of reward Determining Optimal Levels of Patent Protection

130. A B C D E Aggregate Reward to Producers caused by forbidding each successive use Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Efficiency Gains caused by increased productivity induced by each level of reward Determining Optimal Levels of Patent Protection

131. A B C D E Aggregate Reward to Producers caused by forbidding each successive use Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Efficiency Gains caused by increased productivity induced by each level of reward Determining Optimal Levels of Patent Protection

132. A B C D E Aggregate Reward to Producers caused by forbidding each successive use Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Efficiency Gains caused by increased productivity induced by each level of reward Determining Optimal Levels of Patent Protection

133. A B C D E Aggregate Reward to Producers caused by forbidding each successive use Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Efficiency Gains caused by increased productivity induced by each level of reward Determining Optimal Levels of Patent Protection

134. A B C D E Aggregate Reward to Producers caused by forbidding each successive use Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Efficiency Gains caused by increased productivity induced by each level of reward Determining Optimal Levels of Patent Protection

135. A B C D E Aggregate Reward to Producers caused by forbidding each successive use Net impact on economic efficiency of forbidding each successive use Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Efficiency Gains caused by increased productivity induced by each level of reward Determining Optimal Levels of Patent Protection

136. A B C D E Aggregate Reward to Producers caused by forbidding each successive use Net impact on economic efficiency of forbidding each successive use Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Efficiency Gains caused by increased productivity induced by each level of reward Determining Optimal Levels of Patent Protection Identify Highest Point

137. A B C D E Aggregate Reward to Producers caused by forbidding each successive use Net impact on economic efficiency of forbidding each successive use Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Efficiency Gains caused by increased productivity induced by each level of reward Determining Optimal Levels of Patent Protection Assign these entitlements To patentees

138. A B C D E Aggregate Reward to Producers caused by forbidding each successive use Net impact on economic efficiency of forbidding each successive use Aggregate Efficiency Loss caused by forbidding each successive use (no patent protection) Efficiency Gains caused by increased productivity induced by each level of reward Determining Optimal Levels of Patent Protection Assign these entitlements To patentees Deny these entitlements To patentees

139. Determining Optimal Levels of Patent Protection Very rough guidelines: Grant to patentees entitlements that carry with them large ratios – and refuse to excuse encroachments upon those entitlements Deny to patentees entitlements that carry with them small ratios – or grant the entitlements but excuse encroachments upon those entitlements

140. Applications of Reward Theory Assessing the merits and demerits of partial price discrimination Assessing the merits and demerits of compulsory licenses Determining the Optimal Pattern of Entitlements (possible in theory, not in practice) Posner’s “positive” account of extant doctrine