Patent Markets and Innovation in the Era of Big Platform Companies

Abstract

In many industries, the arc of our contemporary economy bends towards bigness. The now-ubiquitous digital platform companies such as Amazon, Facebook, and Netflix and (in China) Baidu, Tencent, and Alibaba are the best-known examples. While some concerned onlookers propose structural remedies, our constrained antitrust law plus the logic of natural monopoly means we are likely to be living with this reality for the foreseeable future. In this setting, it is imperative that we preserve multiple sources of rivalrous innovation even as the reach of Big Platforms continues to grow. We need to carve out and preserve a niche for innovative small and medium sized companies. One way to do this is to promote and protect the secondary patent market. Sale of patents is one way small firms can remain viable in the shadow of Big Platforms. I argue that patent markets are superior in some cases to complete acquisition of a small firm by a Big Platform company, because by selling patents a small firm survives as an independent entity. Recent patent system reforms support this pro-secondary market policy: the era of easy, extortionate patent litigation (which has been associated with the secondary patent market) is coming to a close. After these reforms, patent sales and licensing, at times backed by the threat of litigation, can and will promote small company innovation. This is crucial: if history is any guide, though Big Platforms are today young and vigorous, in the long run they will become less innovative. Preserving multiple small innovators – through the patent market and otherwise – is the best way to prepare for this long run reality.