Patents in the History of the Semiconductor Industry

Abstract

Chips can be easily copied and semiconductor firms are not monopolies. Nevertheless, in the semiconductor industry patents protect Ricardian rents against free riding. Ricardian rents—rents wrought by a firm’s differential ability to produce more output or value per unit of input—remunerate the investments in R&D that semiconductor firms make in the expectation of profit. In addition, patents enlarge the set of business models, strategies, and contracts that firms can use to trade. Many practices that emerged over time—for example technical marketing, second sourcing, licensing, trade in intellectual property—and the observed evolution of horizontal and vertical specialization would not have been feasible without patents. Last, patents and Ricardian rents in the semiconductor industry conciliate protracted investments in R&D with exceptionally fast growth of multifactor productivity and falling prices over almost 70 years.