Tradable patent rights

Stanford Law Review

Volumn 60, Issue 3, 2007, Pages 863-894

  Ayres, Ian ^a   Parchomovsky, Gideon ^b,c  

^a YALE UNIVERSITY   (United States)

^b UNIVERSITY OF PENNSYLVANIA   (United States)

^c BAR ILAN UNIVERSITY   (Israel)

Author keywords

[No Author keywords available]

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EID: 40749086384     PISSN: 00389765     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (155)

1. One of us heard the story from Bruce Lehmann, a former student of Ronald Coase and currently a professor at the University of California, San Diego, in a presentation he gave at the Business Method Patents and Financial Services conference that was organized by the Federal Reserve Bank of Atlanta in April 2003. The conference program with a link to an outline of Professor Lehmann's presentation is available at http://www.frbatlanta.org/ invoke.cfm?objectid= A6BDAC9C-384A-4C59-9096A079D324A9B7&method=display.
2. See, e.g., DAVID WARSH, KNOWLEDGE AND THE WEALTH OF NATIONS: A STORY OF ECONOMIC DISCOVERY (2006) (discussing the importance of innovation to economic growth).
3. See, e.g., Robert P. Merges, As Many as Six Impossible Patents Before Breakfast: Property Rights for Business Concepts and Patent System Reform, 14 BERKELEY TECH. L.J. 577, 589-90 (1999) (discussing the poor quality of patent applications in terms of the number and nature of prior art references).
4. See U.S. PATENT AND TRADEMARK OFFICE, PERFORMANCE AND ACCOUNTABILITY REPORT: FISCAL YEAR 2003, at 107 (2003);
5. Gideon Parchomovsky & R. Polk Wagner, Patent Portfolios, 154 U. PA. L. REV. 1, 17 (2005) ("Notwithstanding the high private cost of patent protection and the relatively low expected value of individual patents, the number of filings in the U.S. (and worldwide) continues to increase.").
6. For more specific discussion that includes figures, see infra Part I.
7. The term "patent thicket" probably originated in the 1970s in a series of cases involving Xerox's patents. See Gavin Clarkson, Objective Identification of Patent Thickets: A Network Analytic Approach (2004) (unpublished Ph.D. dissertation, Harvard Business School) (on file with author).
8. See Carl Shapiro, Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting, in 1 INNOVATION POLICY AND THE ECONOMY 119 (Adam B. Jaffe et al. eds., 2001), available at http://faculty.haas.berkeley.edu/shapiro/thicket.pdf.
9. Id.
10. E.g., ADAM B. JAFFE & JOSH LERNER, INNOVATION AND ITS DISCONTENTS: HOW OUR BROKEN PATENT SYSTEM IS ENDANGERING INNOVATION AND PROGRESS, AND WHAT TO DO ABOUT IT 171-72, 178 (2004).
11. Dan L. Burk & Mark A. Lemley, Policy Levers in Patent Law, 89 VA. L. REV. 1575, 1631-32 (2003);
12. see id. at 1578-79 (suggesting that patent law should be tailored to the needs of specific industries).
13. See 37 C.F.R. § 2.6 (2007);
14. European Patent Convention art. 86, Oct. 5, 1973, 1065 U.N.T.S. 199.
15. Parchomovsky & Wagner, supra note 4, at 14.
16. See Bruce A. Ackerman & Richard B. Stewart, Reforming Environmental Law, 37 STAN. L. REV. 1333, 1341-42 (1985) (proposing tradable emissions permits as an alternative to command-and-control regulation).
17. See discussion infra Part II.B.
18. Admittedly, determining what the cap should be is a difficult task. In this sense, the analogy between industrial pollution and patents is imperfect. In the context of industrial pollution, the cap was set based on careful environmental research. There is no analogous way to determine the desirable quantity of patents. We have not yet figured out a way to measure the optimal level of innovation in our society. In this Article, we use the current level of patent protection, i.e., the total number of patent years, as the baseline cap. Of course, this number might prove too high or too low but over time it may be adjusted through a process of trial and error.
19. See discussion infra Part III.
20. See, e.g., Michael Abramowicz, Perfecting Patent Prizes, 56 VAND. L. REV. 115, 122-24 (2003) (suggesting ways to improve the workings of patent prizes);
21. Ian Ayres & Paul Klemperer, Limiting Patentees ' Market Power Without Reducing Innovation Incentives: The Perverse Benefits of Uncertainty and Non-Injunctive Remedies, 97 MICH. L. REV. 985, 987 (1999) (proposing a system of probabilistic patents to limit patentees' market power);
22. Michael Kremer, Patent Buyouts: A Mechanism for Encouraging Innovation, 113 Q.J. ECON. 1137, 1147-48 (1998) (describing an auction mechanism that allows for the compensation of inventors without creating deadweight loss);
23. Douglas Gary Lichtman, Pricing Prozac: Why the Government Should Subsidize the Purchase of Patented Pharmaceuticals, 11 HARV. J.L. & TECH. 123, 124-25 (1997) (explaining how awarding subsidies to users of pharmaceutical drugs can reduce the deadweight loss associated with patent protection);
24. Steven Shavell & Tanguy van Ypersele, Rewards Versus Intellectual Property Rights, 44 J.L. & ECON. 525, 525-29 (2001) (discussing the possibility of replacing intellectual property rights with a system of rewards).
25. See generally Nancy T. Gallini, The Economics of Patents: Lessons from Recent U.S. Patent Reform, 16 J. ECON. PERSP. 131, 147 (2002) (reviewing the literature and suggesting that poorer review standards induce the creation of patent thickets).
26. U.S. PATENT & TRADEMARK OFFICE, U.S. PATENT AND STATISTICS CHART CALENDAR YEARS 1963-2006 (2007), http://www.uspto.gov/web/offices/ac/ido/oeip/ taf/ us_stat.htm.
27. To be sure, total R&D expenditures have grown even more dramatically in recent years. See SUMIYE OKUBO ET AL., BUREAU OF ECON. ANALYSIS, R&D SATELLITE ACCOUNT: PRELIMINARY ESTIMATES A-30 tbl.4.2 (2006), available at http://www.bea.gov/rd/xls/ 1959_2002_rd_data.xls (showing a 133% rise in real R&D investment over the period 1990 to 2002). The fact that R&D investment has outpaced growth in patent grants is not inconsistent with the proposition that firms are maximizing patents per dollar. Instead, these data likely also reflect an increase in the cost of R&D.
28. See Joseph A. DiMasi et al., The Price of Innovation: New Estimates of Drug Development Costs, 22 J. HEALTH ECON. 151, 168 tbl.4 (2003) (finding an annual increase of 7.4% of drug development costs from 1980-1990). Our point here is that we would expect R&D expenditure growth to outpace growth in patent grants even more in the absence of patent thickets.
29. See Press Release, U.S. Patent & Trademark Office, USPTO Releases Annual List of Top 10 Organizations Receiving Most U.S. Patents (Jan. 12, 2004) (on file with authors);
30. Press Release, U.S. Patent & Trademark Office, USPTO Releases Annual List of Top 10 Organizations Receiving Most U.S. Patents (Jan. 13, 2003) (on file with authors);
31. Press Release, U.S. Patent & Trademark Office, USPTO Releases Annual List of Top 10 Organizations Receiving Most U.S. Patents (Jan. 10, 2002) (on file with authors);
32. Press Release, U.S. Patent & Trademark Office, USPTO Releases Annual List of 10 Organizations Receiving Most Patents (Jan. 10, 2001) (on file with authors);
33. Press Release, U.S. Patent & Trademark Office, IBM Repeats of PTO's Annual List of 10 Organizations Receiving Most Patents (Jan. 11, 2000) (on file with authors);
34. Press Release, U.S. Patent & Trademark Office, IBM Repeats at Top of PTO's Annual List of 10 Organizations Receiving Most Patents (Jan. 8, 1999) (on file with authors);
35. Press Release, U.S. Patent & Trademark Office, USPTO Announces Top Patent Earners (Jan. 12, 1998) (on file with authors);
36. Press Release, U.S. Patent & Trademark Office, USPTO Announces Last Year's Top Patent Earners (Jan. 21, 1997) (on file with authors);
37. Press Release, U.S. Patent & Trademark Office, USPTO Press Release on Top Patent Earners (Jan. 30, 1996) (on file with authors);
38. History of IBM, 1994, http://www-03.ibm.com/ibm/history/history/ year_1994.html;
39. see also Parchomovsky & Wagner, supra note 4, at 46 n.147.
40. Press Release, IBM, IBM Breaks U.S. Patent Record (Jan. 12, 2004), available at http://www-03.ibm.com/industries/education/doc/content/news/ pressrelease/ 992547110.html.
41. See Robert Buderi, Into the Big Blue Yonder, TECH. REV., July-Aug. 1999, at 48.
42. This practice was common in Japan. Sri Krishna Sankaran, Patent Flooding in the United States and Japan, 40 IDEA 393, 393-94 (2000).
43. See, e.g., U.S. Patent No. 5,960,411 (filed Sept. 12, 1997) (claiming one-click online shopping);
44. U.S. Patent No. 6,289,319 (filed Nov. 30, 1994) (claiming online credit card payments);
45. U.S. Patent No. 5,715,314 (filed Oct. 24, 1994) (claiming online shopping carts).
46. Shapiro, supra note 6, at 119. Shapiro defines a patent thicket as "a dense web of overlapping intellectual property rights that a company must hack its way through in order to actually commercialize new technology."
47. Id. at 120.
48. Hearings on Global and Innovation-Based Competition Before Fed. Trade Comm'n, Case No. P951201 (1995), available at http://www.ftc.gov/opp/ global/ GC101295.shtm.
49. U.S. Patent No. 549,160 (filed May 8, 1879) (issued Nov. 5, 1895).
50. FED. TRADE COMM'N, TO PROMOTE INNOVATION: THE PROPER BALANCE OF COMPETITION AND PATENT LAW AND POLICY 3 (2003), available at http://www.ftc.gov/ os/2003/10/innovationrpt.pdf.
51. See id., ch. 3, at 29 (concluding that the proliferation of biotechnology patents may hinder future innovation).
52. Since most nanotechnology is not yet commercially viable, there has not been significant litigation regarding overlapping patents so far. However, the pattern of patenting in nanotechnology closely resembles other fields that are experiencing patent thickets, and some commentators fear that it is only a matter of time before the issue arises in nanotechnology. See, e.g., Liz Gannes, Nanotech Patents Proliferate, RED HERRING, Apr. 20, 2005, http://www.redherring.com/Home/11866.
53. See Shapiro, supra note 6, at 120-21.
54. The success stories of Microsoft and Google are two of many such examples in the software field.
55. FED. TRADE COMM'N, supra note 28, ch. 3, at 44-45.
56. See Shapiro, supra note 6, at 120-21. These "business method" patents have gone as far as to include a patent granted to Sightsound.com for the sale of downloadable music or video over the Internet.
57. Id.
58. FED. TRADE COMM'N, supra note 28, ch. 3, at 52;
59. cf. James Bessen & Robert M. Hunt, An Empirical Look at Software Patents 4 (Fed. Reserve Bank of Phila. Working Papers Research Dep't, Working Paper No. 03-17/R, 2004) (reporting that the increase in patent filings in the software industry is positively correlated with a decline in investment in R&D).
60. But see Ronald J. Mann, Do Patents Facilitate Financing in the Software Industry?, 83 TEX. L. REV. 961, 999-1009 (2005) (suggesting that intense patenting in the industry does not stifle research and that patents actually help small firms).
61. FED. TRADE COMM'N, supra note 28, ch. 3, at 49.
62. JAFFE & LERNER, supra note 8, at 59.
63. Shapiro, supra note 6, at 120.
64. Id. at 125.
65. See 35 U.S.C. § 122(b)(1)(A) (2000) (requiring the PTO, subject to a few narrow exceptions, to publish a patent application eighteen months after its filing date).
66. Shapiro, supra note 6, at 123.
67. Id. (emphasis added).
68. Michael A. Heller, The Tragedy of the Anticommons: Property in the Transition from Marx to Markets, 111 HARV. L. REV. 621, 622-23 (1998).
69. Michael A. Heller & Rebecca S. Eisenberg, Can Patents Deter Innovation? The Anticommons in Biomedical Research, 280 SCIENCE 698, 698 (1998).
70. See Mark A. Lemley, Rational Ignorance at the Patent Office, 95 NW. U. L. REV. 1495, 1507 (2001) (estimating that only five percent of issued patents are licensed for a royalty);
71. see also Steven C. Carlson, Note, Patent Pools and the Antitrust Dilemma, 16 YALE J. ON REG. 359, 385 (1999) ("Most infringed patents are not worth defending in court. . . . Even in the pharmaceutical industry, where patents are most valuable, eight out of ten patents typically produce no value for their holders.").
72. See Shapiro, supra note 6, at 120.
73. For articles suggesting that the problem is very real and acute, see, for example, Shapiro, supra note 6;
74. Gregory J. Glover, Patent Thickets and Innovation Markets Reviewed, 26 NAT'L L.J., Oct. 14, 2002, at C10;
75. Heller & Eisenberg, supra note 44;
76. Bessen & Hunt, supra note 35;
77. James Bessen, Patent Thickets: Strategic Patenting of Complex Technologies (Research on Innovation, Working Paper No. 0401, 2004);
78. Robert Hunt, When Do More Patents Reduce R&D? (Fed. Reserve Bank of Phila. Working Papers Research Dep't, Working Paper No. 06-6, 2006).
79. For the opposite view, see Richard A. Epstein, Steady the Course: Property Rights in Genetic Material, in PERSPECTIVES ON PROPERTIES OF THE HUMAN GENOME PROJECT 153, 166-68 (F. Scott Kieff ed., 2003);
80. and John P. Walsh, Ashish Arora & Wesley M. Cohen, Effects of Research Tool Patents and Licensing on Biomedical Innovation, in PATENTS IN THE KNOWLEDGE-BASED ECONOMY 285, 285 (Wesley M. Cohen & Stephen A. Merrill eds., 2003).
81. But see Peter Lee, Note, Patents, Paradigm Shifts, and Progress in Biomedical Science, 114 YALE L.J. 659, 663 (2004) ("By raising the cost of 'doing science' within an established paradigm, however, patents encourage scientists to create alternate theories of how natural phenomena operate, theories whose investigation does not depend on using patented research tools.").
82. JAFFE & LERNER, supra note 8, at 113-14.
83. The threat is credible in this case as injunctive relief is a standard remedy for patent infringement. See id. at 111 ("Perhaps the most dramatic way in which the [Federal Circuit] has strengthened the remedies available to patentees is the availability of preliminary injunctive relief").
84. For an analysis of litigation trends in patent law, see Parchomovsky & Wagner, supra note 4, at 63-64.
85. Shapiro, supra note 6, at 123.
86. Id. at 119.
87. Id.;
88. see also Robert P. Merges, Institutions for Intellectual Property Transactions: The Case of Patent Pools, in EXPANDING THE BOUNDARIES OF INTELLECTUAL PROPERTY: INNOVATION POLICY FOR THE KNOWLEDGE SOCIETY 123 (Rochelle Cooper Dreyfus et al. eds., 2001);
89. Peter C. Grindley & David J. Teece, Managing Intellectual Capital: Licensing and Cross-Licensing in Semiconductors and Electronics, CAL. MGMT. REV,, Winter 1997, at 8;
90. Josh Lerner, Jean Tirole & Marcin Strojwas, Cooperative Market Agreements Between Competitors: Evidence from Patent Pools (Nat'l Bureau of Econ. Research, Working Paper No. 9680, 2003).
91. See Burk & Lemley, supra note 9, at 1634, 1638-40.
92. See, e.g., John H. Barton, Non-Obviousness, 43 IDEA 475, 492 (2003) (suggesting that the non-obviousness standard should be raised in certain industies);
93. cf. Robert M. Hunt, Nonobviousness and the Incentive to Innovate: An Economic Analysis of Intellectual Property Reform 37-38 (Fed. Reserve Bank of Phila. Research Dep't, Working Paper No. 99-3,1999) (proposing different non-obviousness standards for different industries).
94. Kimberly A. Moore, Worthless Patents, 20 BERKELEY TECH. L.J. 1521, 1525-26 (2005) (citations omitted);
95. see 37 C.F.R. § 1.20(e)-(g) (2007). The maintenance fees for small entities are half these amounts.
96. Id. If a patent expires due to non-payment of maintenance fees, it can be reissued within twenty-four months if the patentee pays a surcharge of $700 or $1640 and convinces the USPTO that the late payment was unavoidable or unintentional. See 37 C.F.R. § 1.378 (2003);
97. id. § 1.20(h). The United States did not charge maintenance fees prior to 1982.
98. Ariel Pakes, Patents as Options: Some Estimates of the Value of Holding European Patent Stocks, 54 ECONOMETRICA 755, 756 (1986).
99. TRILATERAL CO-OPERATION, TRILATERAL STATISTICAL REPORT: 2005 EDITION 39 (2006), available at http://www.trilateral.net/tsr/tsr_2005/tsr2005.pdf.
100. See Joshua S. Gans, Stephen P. King & Ryan Lampe, 4 TOPICS IN THEORETICAL ECON. 1 (2004), available at http://www.bepress.com/bejte/topics/vol4/iss1/art6.
101. See Japan Patent Office: Schedule of Fees, http://www.jpo.go.jp/ tetuzuki_e/ index.htm. These prices derive from fees listed in Yen by the Japan Patent Office using the November 12, 2007, exchange rate of $1 to ¥109.42.
102. This figure is reproduced from TRILATERIAL CO- OPERATION, TRILATERAL STATISTICAL REPORT: 2006 EDITION 41 fig.4.8 (2007), available at http://www.trilateral.net/ tsr/tsr_2006/tsr_2006.pdf. The underlying data is available at http://www.trilateral.net/tsr/ tsr_2006/annex/ 2006_web_annex.xls.
103. Id.
104. See, e.g., Ariel Pakes & Mark Schankerman, The Rate of Obsolescence of Patents, Research Gestation Lags, and the Private Rate of Return to Research Resources, in R&D, PATENTS, AND PRODUCTIVITY 73, 73-74 (Zvi Griliches ed., 1984);
105. Jean Olson Lanjouw, Patent Protection in the Shadow of Infringement: Simulation Estimations of Patent Value, 65 REV. ECON. STUD. 671, 671 (1998);
106. Pakes, supra note 58, at 755;
107. Mark Schankerman, How Valuable Is Patent Protection? Estimates by Technology Field, 29 RAND J. ECON. 77, 77 (1998);
108. Mark Schankerman & Ariel Pakes, Estimates of the Value of Patent Rights in European Countries During the Post-1950 Period, 96 ECON. J. 1052, 1052 (1986);
109. Jean O. Lanjouw, Ariel Pakes & Jonathan Putnam, How to Count Patents and Value Intellectual Property: Uses of Patent Renewal and Application Data (Nat'l Bureau of Econ. Research, Working Paper No. 5741, 1996).
110. Schankerman, supra note 64, at 93 (concluding that the median private value of patent rights, in 1980 dollars, amounted to only $1631 in the pharmaceutical industry, $1594 in the chemical field, $2930 in the mechanical field, and $3159 in electronics, excluding Japan).
111. See Lanjouw et al., supra note 64.
112. Mark A. Lemley & Kimberly A. Moore, Ending Abuse of Patent Continuations, 84 B.U. L. REV. 63, 84 n.81 (2004).
113. Francesca Cornelli & Mark Schankerman, Patent Renewals and R&D Incentives, 30 RAND J. ECON. 197, 197-98 (1999);
114. Suzanne Scotchmer, On the Optimality of the Patent Renewal System, 30 RAND J. ECON. 181, 181 (1999).
115. Cornelli & Schankerman, supra note 68, at 198 ("[D]ifferentiated patent lives can be welfare improving because of an 'incentive effect': allowing firms with high R&D capabilities to choose longer patent lives gives these firms an incentive to invest more R&D resources.").
116. Id. at 208 fig.3.
117. EXECUTIVE OFFICE OF THE PRESIDENT, ECONOMIC REPORT OF THE PRESIDENT 122 (2005).
118. U.S. ENVTL. PROT. AGENCY, PROGRESS REPORT ON THE EPA ACID RAIN PROGRAM 3 (1999), available at http://www.epa.gov/airmarkets/progress/docs/ 1999report.pdf.
119. EXECUTIVE OFFICE OF THE PRESIDENT, supra note 71, at 122.
120. Nathaniel O. Keohane, What Did the Market Buy? Cost Savings Under the U.S. Tradeable Permits Program for Sulfur Dioxide 23 (Yale Ctr. for Envtl. Law and Policy, Working Paper No. ES-33, 2003), available at http://ssrn.com/abstract_id=465320.
121. Id. at 22-23 (noting that prior estimates anticipated even greater cost savings).
122. EXECUTIVE OFFICE OF THE PRESIDENT, supra note 71, at 123.
123. Id. at 124.
124. Id.
125. Id. at 124-25.
126. See Kevin Chen & Karl Meilke, The Simple Analytics of Transferable Production Quota: Implications for the Marginal Cost of Ontario Milk Production, 46 CAN. J. AGRIC. ECON. 37 (1998).
127. See Douglas MacMillan, Tradeable Hunting Obligations - A New Approach to Regulating Red Deer Numbers in the Scottish Highlands?, 71 J. ENVTL. MGMT. 261, 261 (2004).
128. See Ricardo Bayon, A Bull Market in . . . Woodpeckers?, MILKEN INST. REV., Mar. 2002, at 30, available at http://www.milkeninstitute.org/publications/review/2002_3/ 30_39.pdf.
129. See Robert Cooter, Prices and Sanctions, 84 COLUM. L. REV. 1523, 1523 (1984);
130. William Poole, Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model, 84 Q.J. ECON. 197, 197 (1970);
131. Martin L. Weitzman, Prices vs. Quantities, 41 REV. ECON. STUD. 477, 477 (1974). Indeed, the analysis and figures of patenting in this Part closely parallel the analysis of affirmative action quotas and credits found in Ian Ayres
132. Narrow Tailoring, 43 UCLAL. REV. 1781 (1996).
133. Weitzman, supra note 83, at 477-78 (first emphasis added).
134. But see Louis Kaplow & Steven Shavell, On the Superiority of Corrective Taxes to Quantity Regulation, 4 AM. L. ECON. REV. 1, 1-2 (2002) (acknowledging that Weitzman's view has been accepted by many economists but arguing that corrective taxes are a superior way of controlling externalities).
135. See Brian D. Wright, The Economics of Invention Incentives: Patents, Prizes, and Research Contracts, 73 AM. ECON. REV. 691, 691-92 (1983). Weitzman made a similar point: ... In an environment of complete knowledge and perfect certainty there is a formal identity between the use of prices and quantities as planning instruments. If there is any advantage to employing price or quantity control modes, therefore, it must be due to inadequate information or uncertainty.
136. Weitzman, supra note 83, at 480. For a parallel analysis in the affirmative action context
137. see Ayres, supra note 83.
138. Graphically, q*L - qRL < Q* - q*L and qRH - q*H < q*H - Q*.
139. See, e.g., Kaplow & Shavell, supra note 84, at 14 (noting that corrective taxes leave control decisions to individual firms);
140. Louis Kaplow & Steven Shavell, Property Rules Versus Liability Rules: An Economic Analysis, 109 HARV. L. REV. 713, 725 (1996) (pointing out that liability rules allow the state to harness the information of private parties).
141. However, the government would need to assess a longer span of the MSC curve instead of just assessing the local point at which the MSC and MPB curves intersect. There may be circumstances in which the latter assessment might be easier. See Richard R.W. Brooks, The Relative Burden of Determining Property Rules and Liability Rules: Broken Elevators in the Cathedral, 97 NW. U. L. REV. 267, 284-99 (2002) (developing a framework for choosing between property rules and liability rules).
142. A similar point was made by Ryan Lampe and Anthony Niblett, The Economics of Patent Design: A Selective Survey 19 (Intellectual Prop. Research Inst. of Austl., Working Paper No. 06/03, 2003) ("This policy has been introduced (in part) to prevent inefficient use of the patent system. In order to ensure optimality, the patent renewal fee at time t should equal the marginal social cost at time t.").
143. 42 U.S.C. § 7651o(d)(2) (2000). In order to comply with the cap on the level of air-polluting emissions established by the Clean Air Act Amendments of 1990, Pub. L. No. 101-549, 104 Stat. 2399 (1990), the EPA distributed allowances to certain industries that limited how much they could pollute; each allowance permitted the industry to emit a certain unit of air pollution. A small proportion of allowances were reserved by the EPA and sold at an annual sealed-bid auction.
144. 2 auction has been described in the following way: Interested parties submit bids indicating the number of allowances they seek to purchase and the price they are willing to pay. The Chicago Board of Trade [which the EPA has designated to run the auction] determines the price that would lead to the sale of all the available allowances. All bids at or above that price are then accepted, with each successful bidder paying the amount it bid.
145. Jonathan Remy Nash & Richard L. Revesz, Markets and Geography: Designing Marketable Permit Schemes to Control Local and Regional Pollutants, 28 ECOLOGY L.Q. 569, 658 (2001).
146. See Moore, supra note 57, at 1527-31.
147. WILLIAM D. NORDHAUS, INVENTION, GROWTH, AND WELFARE: A THEORETICAL TREATMENT OF TECHNOLOGICAL CHANGE (1969) (discussing the optimal patent system). For subsequent studies of the issue of patent scope
148. see, for example, Howard F. Chang, Patent Scope, Antitrust Policy, and Cumulative Innovation, 26 RAND J. ECON. 34 (1995);
149. Julie E. Cohen & Mark A. Lemley, Patent Scope and Innovation in the Software Industry, 89 CAL. L. REV. 1 (2001);
150. Richard Gilbert & Carl Shapiro, Optimal Patent Length and Breadth, 21 RAND J. ECON. 106 (1990);
151. Hugo A. Hopenhayn & Matthew F. Mitchell, Innovation Variety and Patent Breadth, 32 RAND J. ECON. 152 (2001);
152. Paul Klemperer, How Broad Should the Scope of Patent Protection Be?, 21 RAND J. ECON. 113 (1990);
153. Robert P. Merges & Richard R. Nelson, On the Complex Economics of Patent Scope, 90 COLUM. L. REV. 839 (1990).
154. See, e.g., FRITZ MACHLUP, SUBCOMM. ON PATENTS, TRADEMARKS, AND COPYRIGHTS OF THE S. COMM. ON THE JUDICIARY, 85th CONG., AN ECONOMIC REVIEW OF THE PATENT SYSTEM 80 (Comm. Print 1958) ("If we did not have a patent system, it would be irresponsible, on the basis of our present knowledge of its economic consequences, to recommend instituting one.");
155. George L. Priest, What Economists Can Tell Lawyers About Intellectual Property: Comment on Cheung, in 8 RESEARCH IN LAW AND ECONOMICS: THE ECONOMICS OF PATENTS AND COPYRIGHTS 19, 19 (John Palmer & Richard O. Zerbe, Jr. eds., 1986) ("The ratio of empirical demonstration to assumption in [the patent] literature must be very close to zero.").