Initial allocations of proprietary rights matter because who starts out holding the rights helps determine who ends up holding the rights. In patent law, proprietary rights are granted to those who are first to invent. But entities who win the race to patent an invention are not necessarily the final, or best, or most efficient users of the technology. If proprietary rights, particularly patents on basic research results, could be traded efficiently so that downstream innovators could obtain them from initial rights holders easily, then initial allocations of proprietary rights would not matter so much. Transferring proprietary rights is costly, however, which often makes it difficult to achieve the highest and best use of such rights. In addition to transaction costs, uncertainty over whether patented basic research results can be turned into commercially viable products can cause bargaining breakdown. Faced with uncertainty, parties to a licensing transaction may rely on proxies to establish a value for the patented basic research results. Such proxies may be driven by the reputation of the initial rights holder rather than by the qualities of the technology being licensed. The characteristics of the initial rights holder and the strength of its bargaining position thus become important elements in determining whether proprietary rights get transferred and if so, under what terms. Because initial allocations drive final allocations, initial allocations matter in achieving the best and most efficient use of proprietary rights.
Intellectual Property Law | Law | Science and Technology Law
Proprietary Rights and Why Initial Allocations Matter,
Emory L. J.
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/3492