Patents inherently prevent a piece of IP from being combined with other knowledge

Imagine a system with components A, B, and C, each of them owned by a different entity. On their own, they are worth one unit but the system is worth ten units. Arguably, the value of the last unit added to the system is actually eight. A game theoretical situation occurs where each IP owner holds out to be paid eight units. An alternative situation is that the value of the system is five but A, B, and C all arbitrarily set their price to be two.

This situation is exacerbated the more different applications there are.

This combinatorial drag from patents is why In most industries outside of pharma and chemicals, patents are a net drag on innovation. Chemicals and drugs usually have a 1:1 correspondence between patents and products. On the other hand, semiconductors and software can have dozens of patents in a single product.

What about a non-exclusive license? If it’s under a non-exclusive license that effectively becomes a public good. Non-exclusive licenses have other problems - they enable you to capture less value and still require lawsuits and monitoring to enforce.


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