Are "strong patents" beneficial to innovative activities? Lessons from the genetic testing for breast cancer controversies

Abstract

In an article recently published in Industrial and Corporate Change, Arora and Merges (2004), joining the current debate on the influence of intellectual property rights (IPRs), argue that “stronger IPRs” can be favorable to innovation, particularly by enabling the development of independent firms which specialize in “intensive information products.” The more complete thesis put forward by these authors is that stronger IPRs, by favoring the emergence and viability of small independent firms over (vertical) integration, bring higher economic efficiency thanks to a more profound division of social labor. In terms of the transaction cost analysis of the role of IPRs, Arora and Merges’ contribution is clearly of great interest and originality. However, we believe that the scope of their demonstration remains very limited. First, it is limited because the authors neglect the question of the real levels of “independence” and “viability” of the small, specialized firms they discuss in their article. This is a question of considerable importance, as these types of firm are often entirely dependent on the specialized financial markets. Their development is therefore closely linked to institutional investors’ evaluation of the “assets” constituted precisely by the patents (and other IPRs) which they possess.1

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