The patent paradox – New insights through decision support using compound options

By considering the patent from the perspective of a compound option it is possible to offer useful insights into what a patent does, when it is worth patenting, and the effects of changes to patent regulation and enforcement in terms of maximizing economic and societal benefits. A paradox exists because stronger patent laws with longer durations allow greater profit to the inventor, but strong and long patent protection discourages related innovation as the protection for the underlying technology becomes broader and duration is longer. Through the demonstration that under current regulation the net present value of a sample patentable invention must be a little over half a million dollars ($556,000) at the time of patent filing, insight is offered into when it is economically advisable to patent. The effect of changes to patent regulation can also be rapidly assessed using this technique. Consequently, the compound option provides value to policy makers for decision support in assessing the impact of changes to patent policy and to inventors and patent attorneys on assessing whether it is economically rational to patent.

► Demonstrates how a patent is best modelled using a 2 step compound option.
► Demonstrate how to calculate the required market value - i.e. is it worth patenting.
► Assumptions suggest that current market value be at least 55 times patent cost.