1 Department of Management, Aarhus School of Business, Aarhus BSS, Aarhus University2 Centre for Organizational Renewal and Evolution (CORE), Aarhus School of Business, Aarhus BSS, Aarhus University3 Department of Management, Aarhus BSS, Aarhus University4 Department of Management, Aarhus BSS, Aarhus University
Merges and Nelson claim to have provided an empirically grounded argument that pioneer patents of 'broad' scope are used to block technological development. It is widely understood in both law and economics that they have, as they claim, faulted Kitch's 'prospect theory' of patents, a theory that a function of patents is to enable the coordinated development of novel technical ideas. This article is a critical review of Merges and Nelson's historical empirical evidence. I find that, first, 'broad' scope is only implicated in one of the examples cited by Merges and Nelson as supportive evidence - the Wright brothers' warped-wing patent; second, that strict development block, defined as the prevention, or retardation of the development of technology understood to be capable of useful development, was not illustrated by any of their examples. Therefore I conclude that their general thesis is not supported by their selection of evidence; even the Wright brothers' warped wing patent was not successfully used to block the superior 'downstream' innovation of the aileron. I further show that although a subset of their cases illustrate patents acting to hinder developers (but not the development of the patented technology), when adequate historical context is included in the analysis, the common problem is revealed to be that the patents at issue were not administered, for example by courts or the US Patent Office, to maintain their prospect function i.e, their ability to enable the coordination of development. This interpretation restores the credibility of Kitch's prospect theory of patent function and emphasises that the administration of the patent institution should be designed to support the prospect function of patents.
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<em>SASE 19<sup>th</sup> Annual Meeting on Socio-Economics</em>, 2007