Connecting the Dots of a Weak Patent System and Productivity Growth Decline
Technology transfer is blocked in a weak patent system since companies employ the “efficient infringement” model. In a weak patent system, enforcement is expensive and burdensome, supplying the infringer with incentives to infringe. Rather than voluntarily license technology, incumbents engage in reverse hold out in which they ignore patents and refuse to deal with patent holders. When an entire industry engages in reverse hold out, that is, collective refusal to deal, which is enabled by a weak patent system with high barriers to enforcement, they exhibit anti-competitive behaviors. In fact, enforcement in the courts, as expensive as it is, is generally caused by the belligerence and refusal to deal by technology incumbents which force matters to the courts. Particularly in the absence of an injunction as a remedy for the patent holder, the patent holder can no longer possibly be considered a hold out because their patents cannot enforce an exclusive property patent right. In the pervasive business and political environment that enables the collective refusal to deal with patent-holding market entrants, with high transaction costs to patent enforcement and with reduced compensation from enforcement because of a reduction in patent remedies, there is no incentive to invest in innovation.