Patent Races for COVID-19 Vaccines and Liability Rules

I analyze a model of patent races for COVID-19 vaccines under alternative liability rules. The first inventor of the vaccine gets the monopoly rent, but must assume full liability from its side effects. In this model, firms choose two kinds of investments, one for inventing a vaccine and the other for its safety. I show that firms have an incentive to overinvest in both activities under strict liability. This is contrasted with the established result established that the injurer takes socially optimal accident-preventing precaution under strict liability. This contrast comes from the competition effect. Overinvestment in inventing vaccines due to competition makes a firm overinvest in safety as well. I also argue that it is undesirable for firms to get full or partial exemption from liability, because it would reduce the incentive to invest in safety. Instead, reducing the monopoly rent by regulating the vaccine price resolves both overinvestment problems.

Does Winning a Patent Race lead to more follow-on Innovation?

Competition between firms to invent and patent an idea, or “patent racing,” has been much discussed in theory, but seldom analyzed empirically and never at scale. This article introduces an empirical way to identify patent races, and provides the first broad-based view of them in the real world. It reveals that patent races are common, particularly in information-technology fields. The article then analyzes the effect of winning a patent race, showing that patent race winners do significantly more follow-on innovation, and their follow-on research is more similar to what was covered by the patent. (JEL CODES: O34, O32, O31)

The Myth of the Sole Inventor

The theory of patent law is based on the idea that a lone genius can solveproblems that stump the experts, and that the lone genius will do so onlyif properly incented. We deny patents on inventions that are "obvious" toordinarily innovative scientists in the field. Our goal is to encourageextraordinary inventions – those that we wouldn’t expect to get without theincentive of a patent.The canonical story of the lone genius inventor is largely a myth. Edisondidn’t invent the light bulb; he found a bamboo fiber that worked better asa filament in the light bulb developed by Sawyer and Man, who in turn builton lighting work done by others. Bell filed for his telephone patent on thevery same day as an independent inventor, Elisha Gray; the case ultimatelywent to the U.S. Supreme Court, which filled an entire volume of U.S.Reports resolving the question of whether Bell could have a patent despitethe fact that he hadn’t actually gotten the invention to work at the timehe filed. The Wright Brothers were the first to fly at Kitty Hawk, buttheir plane didn’t work very well, and was quickly surpassed by aircraftbuilt by Glenn Curtis and others – planes that the Wrights delayed by overa decade with patent lawsuits.The point can be made more general: surveys of hundreds of significant newtechnologies show that almost all of them are invented simultaneously ornearly simultaneously by two or more teams working independently of eachother. Invention appears in significant part to be a social, not anindividual, phenomenon. Inventors build on the work of those who camebefore, and new ideas are often "in the air," or result from changes inmarket demand or the availability of new or cheaper starting materials. Andin the few circumstances where that is not true – where inventions trulyare "singletons" – it is often because of an accident or error in theexperiment rather than a conscious effort to invent.The result is a real problem for classic theories of patent law. If we aresupposed to be encouraging only inventions that others in the fieldcouldn’t have made, we should be paying a lot more attention than wecurrently do to simultaneous invention. We should issuing very few patents– surely not the 200,000 per year we do today. And we should be denyingpatents on the vast majority of the most important inventions, since mostseem to involve near-simultaneous invention. Put simply, our dominanttheory of patent law doesn’t seem to explain the way we actually implementthat law.Maybe the problem is not with our current patent law, but with our currentpatent theory. But the dominant alternative theories of patent law don’t domuch better. Prospect theory – under which we give patents early to onecompany so it can control research and development – makes little sense ina world in which ideas are in the air, likely to be happened upon bynumerous inventors at about the same time. And commercialization theory,which hypothesizes that we grant patents in order to encourage notinvention but product development, seems to founder on a related historicalfact: most first inventors turn out to be lousy commercializers who end updelaying implementation of the invention by exercising their rights.If patent law in its current form can be saved, we need an alternativejustification for granting patents even in circumstances ofnear-simultaneous invention. I consider two other possibilities. First,patent rights encourage patent races, and that might actually be a goodthing. Second, patents might facilitate markets for technology. Both havesome logic to them, but neither fully justifies patent law in its currentform. As a result, I offer some suggestions for reforming patent law totake account of the prevalence of simultaneous invention.