October 13, 2011
Photo: X-Prize Foundation
The patent system exists to address private underinvestment in research and development due to partial lack of appropriability (reproducibility) of knowledge. Patents are seen as a means to encourage private investment in research and innovation. In the area of environmental protection, however, policy confronts a second externality: the benefits of environmental protection flow largely to those who do not bear the costs. The existence of the second externality means that in the case of environmental protection, allowing firms to appropriate social benefits via their market power and pricing behavior has the drawback that without further policy design, the patent system will tend to inhibit the diffusion of the technologies whose creation it encourages.
In addition to the welfare cost of limited diffusion, patent protection also has potential negative consequences for subsequent innovation that builds on the protected technologies. However, given the environmental externality, such diffusion and follow-on innovation is highly desirable. This has triggered an active debate on the role and usefulness of patents in the generation of innovation and diffusion of green technologies.
The Eco-Patent Commons is a private initiative by a number of large multinational firms such as Sony, IBM, Nokia etc., in collaboration with the World Business Council for Sustainable Development, that offers one potential solution to address the problem of diffusion. In this ‘patent commons’, participating firms pledge patents and commit not to assert them against third parties. While anyone interested can thus enjoy royalty-free access to the protected technologies, pledging firms maintain their ownership by keeping the patents in force. This implies that they bear the direct recurrent costs associated with patent ownership in the form of renewal fees as well as indirect costs from administering patent ownership. The Eco-Patent Commons initiative provides, therefore, a unique opportunity to study what happens to technology diffusion if enforceable patent protection is effectively removed from the pledged technologies.
The official purpose of this private initiative is to promote the diffusion of green technology and to increase the potential for follow-on innovation. In addition, participating firms may benefit from cooperation and collaboration with potential users attracted by the pledged inventions. Obviously, one can imagine an additional purpose: to improve the reputation and public relations of the participating firms, possibly by contributing patents on inventions of little value and the pledge, therefore, generating little cost to the firm. Alternatively, the patents contributed could be those on inventions that need development effort that the firms in question are not willing to undertake.
In our recent research, we look at 238 patents taken out in a number of countries on 94 inventions that were pledged by 12 participating firms. We ask whether the Eco-Patent Commons initiative achieves its ambitious official objectives. We address this broad question by answering a range of intermediate questions: (a) Are the patented technologies indeed related to environmental protection? (b) Are the patents that protect these technologies valuable? (c) Will royalty-free access to the Eco-Patent Commons patents lead to more diffusion of the protected technologies and the generation of sequential innovations than otherwise?
Does it work?
Our analysis of the 238 patents in the Eco-Patent Commons shows that slightly over 80 percent of the Eco-Patent Commons patents have been contributed by just four firms: Bosch, DuPont, IBM, and Xerox. In almost all cases the patent was first applied for at the US Patent and Trademark Office, the German patent office, or the Japanese patent office, and in most cases at the office corresponding to the headquarters of the applicant.
Are the patented technologies indeed related to environmental protection? Are the patents that protect these technologies valuable? Our answer to these questions is a qualified ‘Yes’. Pledged patents appear to be ‘green’, although this may be a matter of interpretation. Many of the Eco-Patent Commons patents seem to be related to environmental cleanup or clean manufacturing, but only tangentially to environmental protection and mitigating the effects of global climate change.
Judging by some indicators of a patent’s value, the patents are more valuable than the average patent held by pledging firms and comparable patents protecting similar technologies. However, they tend to be more derivative of previous technologies and somewhat narrower than other patents in their class, suggesting that they are not for very radical inventions. In fact, in our reading, patents in the commons protect relatively narrow technical solutions to specific problems rather than complex technologies. This also implies that they might be useful on their own and not require complementary patents not contained in the commons. Because they are usually distant from the firm’s technology (patent) portfolio, one reason for pledging them may be that they are not very valuable to the firm holding them.
In spite of this, pledging firms also appear to maintain at least one patent of a patent family in force after it has been pledged by paying the renewal fees. A comparison with patents protecting similar technologies suggests that the share of patents in force is considerably larger for the Eco-Patent Commons patents, 70 percent are still in force relative to 38 percent of the comparable patents. Most patents that enter the commons are in fact young and most of their statutory lifetime remains.
Will royalty-free access to the Eco-Patent Commons patents lead to more diffusion of the protected technologies and the generation of sequential innovations than otherwise? Our answer to this question is far less conclusive. Our analysis suggests that pledging these patents, that is making them available royalty-free to third parties, has no discernible impact on the diffusion of the knowledge embedded in the protected technologies to other patenting firms. However, given the short period of time after the patents have been pledged that is available so far, our results are naturally of preliminary nature but invite further scrutiny in the near future.
Are patent commons a way to address a potential lack of green technology diffusion caused by patent protection? Our analysis of the patents pledged to the Eco-Patent Commons, which is the only existing patent commons specifically targeting green technology, suggests that the pledged patents may prove useful (at least to some extent) in avoiding and mitigating environmental damage. However, it remains to be seen whether they diffuse more as a result of being accessible royalty-free.