Why Incumbents (Usually) Prefer Weak Intellectual-Property Rights

This chapter challenges the conventional assumption that incumbents in technology markets lobby for strong IP rights to erect entry barriers and capture market rents. In the railroad industry in the late nineteenth century, in the software industry in the 1960s and 1970s, and in patent-reform debates since the mid-2000s, large vertically and horizontally (systems-level) integrated firms outside the pharmaceutical industry have generally advocated for weaker patents or resisted the extension of IP protection to new technologies. By contrast, smaller R&D-intensive entities and venture-capital firms have generally expressed the opposite position. A comprehensive study of all amicus briefs filed in Supreme Court patent-related litigation during 2006–2016 confirms this entity-specific divergence in IP-policy preferences. Historical and contemporary evidence supports the hypothesis that in a significant number of industries, weak patents protect incumbents by impeding entry by smaller innovators that lack comparable non-IP complementary capacities by which to capture returns on innovation.