Economics and Patents - Microeconomic Perspective

Microeconomic Perspective

The economics surrounding a single patent, or group of patents, revolves around the balance between the expense of obtaining and maintaining the patent(s), and the income derived from owning that/those patents.

The grant of a patent provides the inventor temporarily with an exclusive legal right, thereby securing a means to redeem the costs of research (by charging a higher price for its invention or by license fees from others who wish to practice it). Invention is slightly advanced as people are encouraged to research and invent by the individual financial rewards of doing so.

A patent is an exclusionary right - preventing others from entering the market - and so its effect may be to increase the patent proprietor's income from that market. The major economic effect is the exclusivity period of the patent rights, when exploitation pays back for the enterprise that funded research and development. However, patenting alone does not guarantee for marketing success.

The right to exclude others from entering market with copies is, however, potentially extremely valuable as it can mean total exclusivity in that market for the duration of the patent (generally 20 years from filing). For example, worldwide sales of a patented pharmaceutical can be millions of dollars per day, whereas the generic equivalent sells for less than half the price. A good example of the financial rewards available to the small business from excluding large competitors from a market is the success of the Dyson vacuum cleaner.

Income improvement from a patent is difficult to measure. One may attempt to measure the difference in price of an "improved" product patent, or compare with the price of the product in markets where (or when) it were not patented. More directly measurable income is that which is received from the licensing or sale of patent rights, or from successful litigation of infringement.