Economic Analysis Of Patent Dispute: Occurrence, Decision-making And Relief

In the context of innovation-driven strategy implementation, patent system has great significance to enhancing China’s technological innovation capability. However, patent system arrangement and the intensified market competition trigger patent disputes and patent litigation explosion. On the one hand, patent system design that aims to find a balance between private property and public property of knowledge induces theoretic dispute of whether patent system can promote technological innovation. On the other hand, new era challenges including commercial war, big data age and institutional (legal) change bring more uncertainties to patent system. Great changing practice compels companies to seek more tactics and leads to the emergence of patent thicket dilemma and patent troll phenomenon together with technological changes and patent examination system.Patent disputes influence and even change patent-related parties’behaviors and strategy as well as disrupt patent market order to some extent. Complexity and specialization nature of patent disputes cause new problems and contradictions. On the macro-level, our patent system exist some problems in aspects of legislation and judicial practice despite learning experience from Western countries. On the micro-level, the abilities of companies’patent strategy and levels of patent application need to be improved.Researches of patent system focuses more on innovation and its incentives, and emphasize to analyze how patent plays a role in improving innovation incentives. Nevertheless, current researches of patent disputes pay little attention to the ex post patent system. What’s more, it still not yet forms a relatively complete theoretical framework and reaches a consistent conclusion. At present, the study of law and economics doesn’t work well together in theoretical studies. Legal scholars prefer to conduct a deep analysis of reasonableness of specific aspects of law while economists often explain patent disputes related phenomena, but it still doesn’t form a relatively clear paradigm. Foreign scholars do some empirical research using patent databases and judicial cases databases, but they still don’t reach a consistent conclusion about whether patent system can promote technological innovation effectively and some patent dispute related problems. In contrast, progress of patent dispute’localization research is slow. On the one hand, China’s construction of judicial cases database lags behind and information content of patent database has some gaps with America, which affect patent dispute research progress. On the other hand, confined to the limited scholars in law and economics, research separation in law and economics is obvious and thus is difficult to obtain a patent dispute panorama.Our paper attempts to promote existing research in patent dispute occurrence, patent litigation decision-making and patent dispute relief aspects considering the importance of patent dispute problem in practice and paucities in current research so that we can reach a higher and deeper understanding of patent dispute related problems. The methods we use are economic analysis, game-theory analysis and empirical analysis due to the characteristics of our research problems. In the analysis of patent dispute, we first use economic analysis to describe the economic basis of patent system. Then we put forward the opinion that patent dispute is endogenous in patent system using literature demonstration method. Next we do theory and empirical analysis of patent dispute occurrence mechanism, litigation decision-making mechanism and relief mechanism using game model and empirical data, and then put forward normative suggestions.Our study aims to achieve four research purposes. Firstly, summarize research status and paradigms systematically of patent dispute in law and economic framework. Secondly, explore deep into the logic and mechanism of patent dispute occurrence, litigation decision-making and relief. Thirdly, discover the problems of our patent system to explain and predict the trend and coping strategies of patent system reform. Fourthly, analyze and show the changes of company as well as government behaviors in new knowledge era and coping strategies.Main contents of our study are theory and empirical analysis of patent dispute occurrence, decision-making and relief mechanism, since mechanisms of patent dispute occurrence, decision-making, judicial and administrative relief influence and decide the occurrence and outcomes of patent disputes jointly. Theoretically, analyzing related mechanism of patent dispute and doing empirical test of patent theory using database are decompositions and deepening of patent dispute related mechanisms and also are the best interpretation of patent dispute occurrence and settlements.In the study of patent dispute occurrence mechanism, we summarize the occurrence reasons of patent dispute into legislative defects of patent system and patent legal framework, patent layout and application strategy of patent applicants, as well as infringement an anti-infringement strategies of patent disputes’ parties. We also construct static and dynamic game models both in complete information background to show how the effort of patent disputes parties’ infringement and anti-infringement strategies and patent system can reduce the probabilities of patent disputes’occurrences. We find legislative defect of patent system is one of the reasons of patent dispute and effective patent system design can reduce the probabilities of patent dispute occurrence. Patent layout and application of patent applicants as well as infringement and anti-infringement strategy affect probabilities of patent dispute occurrence.Once patent dispute occurs, the main issue of patent dispute turns into the patent litigation strategy of relevant parties. Legal scholars and economists have done relatively many researches in this area, but more researches focus on settlement of pre-trail stage. To study the patent litigation decision-making mechanism, we select the research gaps of how financing constraints and reputation mechanism influence litigation settlement and appeal decision of litigants in order to put forward one step of present research. The result shows that financing constraints as well as the reputation mechanism play important roles in the settlement of lawsuit and decision-making of appealing, but take effect in a different way. The weaker of the financing constraints on listed companies, the more difficult for the parties to reach settlement and more likely to appeal. The listed companies with strong financing constraints, however, are equally difficult to reach settlement and are inclined to appeal in order to maximize the economic interests.Patent relief plays an important role in patent dispute solution. At present, our country implements the "dual track" patent protection system that emphasizes both judicial protection and administrative protection, but the debate of whether this system is valid is endless and the focus of debate is the necessity of administrative patent protection system’s existence. Our study argues that administrative power’s intervention into patent protection has its theory and practice basis, and judicial protection can’t entirely replace the function of patent administrative department. To validate our judgment, we use data of 348 enterprises between 2009 to 2012 of Chinese Growth Enterprises Market (GEM) to test the validity of administrative patent protection system. The selection criteria or the method of testing the validity is the influence differences of various regions’ administrative preference on local enterprise’s innovation incentives. The study finds that in the background of our "Big Settlement" system, the tendency of local administrative settlement way of patent infringement cases promotes enterprise’s innovation incentives.Research highlight of our study is the economic analysis of patent disputes. Legal scholars enjoy the study of patent disputes and litigations, but they pay more attention to analyze the formulation of specific laws and regulations. Legal analysis can’t really clarify the logic of patent dispute occurrence and the decision-making process of litigants, and also can’t measure the influence of patent dispute and patent reform on social welfare and innovation outcome. In contrast, economic analysis solves the problem perfectly. In our study, game analysis clarifies the story and logic of patent dispute analysis, while empirical analysis verifies assumptions such as parties" litigation decision-making and the innovation outcomes of patent relief. The study of economic analysis’s application on patent dispute problem promotes the integration of law and economics to some extent.Our study extends present research of patent disputes and does theory and empirical research of the mechanisms of patent dispute occurrence, litigation decision-making and relief using patent dispute data based on the theory framework that patent dispute is endogenous in patent systems. We also put forward the suggestions specifically of how to understand and cope with patent disputes to enterprise and government. The study extends Chinese law and economics’ indigenous research and help us better recognize and understand patent dispute as well as put forward specific suggestions to patent system reform and settlement of patent disputes from the perspective of legislative reform and judicial practice. These analyses provide strategy selection choices and references for patent applicants and operators, and offer empirical evidence for policy makers and patent judicial and administrative executives to understand patent systems and patent dispute mechanisms in reality at the same time. Our study also provides solutions and reform inspirations to current patent system’s problems, and offers important reference to the implementation of our innovation-driven strategy as well as promotion of innovation capabilities in Internet era.