Patent Buyouts: A Mechanism for Encouraging Innovation

Abstract

In 1839 the French government purchased the Daguerreotype patent and placed it in the public domain. Such patent buyouts could potentially eliminate the monopoly price distortions and incentives for rent-stealing duplicative research created by patents, while increasing incentives for original research. Governments could offer to purchase patents at their estimated private value, as determined in an auction, times a markup equal to the typical ratio of inventions' social and private value. Most patents purchased would be placed in the public domain, but to induce bidders to reveal their valuations, a few would be sold to the highest bidder.