Patent thicket

Definition
A patent thicket has been defined as a “dense web of overlapping intellectual property rights that a company must hack its way through in order to actually commercialize new technology.”

Business Problems of Patent Thickets
In some industries, such as computer hardware and software, firms can require access to dozens, hundreds, or even thousands of patents to produce just one commercial product. Many of these patents overlap, with each patent blocking several others. Much of this thicket of overlapping patent rights results from the nature of the technology; computer hardware and software contain an incredibly large number of incremental innovations. Moreover, as more and more patents issue on incremental inventions, firms seek more and more patents to have enough bargaining chips to obtain access to others’ overlapping patents. A major problem with this strategy is that the time and money a company has to spend on creating and filing “defensive patents,” which may have no innovative value in and of themselves, could better be spent on developing new technologies.

Questionable patents contribute to the patent thicket. In the context of a patent thicket, questionable patents can introduce new kinds of licensing difficulties, such as royalties stacked one on top of another, and can increase uncertainty about the patent landscape, thus complicating business planning. Questionable patents in patent thickets can frustrate competition by current manufacturers as well as potential entrants. Because a manufacturer needs a license to all of the patents that cover its product, firms can use questionable patents to extract high royalties or to threaten litigation. For example, a questionable patent that claims a single routine in a software program may be asserted to hold up production of the entire software program. This process can deter follow-on innovation and unjustifiably raise costs to businesses and, ultimately, to consumers.

Economic Problems of Patent Thickets
The potential economic problems associated with patent thickets are diverse. First, in a patent thicket where innovation depends on having access to existing patents held by many different owners, the transaction costs of access can rise substantially because of the costs of negotiating with each of many individual patentees.

Second, in some situations, the transaction costs of learning about and individually licensing all existing relevant patents are high enough to significantly undermine the economic incentive to develop follow-on innovation and production. In other situations, uncertainty surrounding pending patents hampers reaching licensing agreements. Unless a firm can mitigate the problem, it may have to choose between the risk of being sued for infringement after it sinks costs into its invention or production, or dropping its innovative or productive efforts altogether.

Third, a follow-on innovator in a patent thicket generally needs to access multiple patentees’ intellectual property to develop his invention. Each patentee will demand a higher royalty than its patent would command if it were licensed as part of a package. Finally, in patent thickets in which follow-on innovation depends on having access to many patents held by a group of oligopolists, the oligopolists may use the patents to prevent entry.