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Constellation IP and environmental quality

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Abstract

We consider optimal intellectual property (IP) policy when (1) firms embed ‘constellations’ of IP—patented, secret/non-patentable, and patentable-but-secret innovations—into products such as communication satellites operating in low Earth orbit and (2) an innovation may improve both product performance and ambient environmental quality. For instance, a materials science innovation by SpaceX that is shared via patent licensing could raise the technical performance of all satellites in low Earth orbit and at the same time reduce orbital debris. Traditional IP policy helps innovators monetize spillover technological benefits by combining patent licensing rights with the right of competitors to reverse engineer patentable-but-secret innovations. However, we show that when disclosure of an innovation also creates spillover environmental improvements, licensing policies that address only the technological knowledge spillover are inefficiently weak. We characterize the conditions under which private firms will hold secret more patentable innovations than are socially optimal. We then suggest implementable IP policies for jointly promoting technical innovation and environmental quality improvements.

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Notes

  1. See, e.g., Bloom et al. (2013, 1349) who estimate that the socially optimal rate of R&D is over twice as high as the level of observed R&D in a panel of United States firms over the period 1981–2001.

  2. Hall et al. (2014) review a wide range of traditional IP policies and empirical studies of their effectiveness.

  3. Adilov et al. (2018, 2023) and Rouillon (2020) both offer excellent surveys of the LEO debris management challenge and also consider a representative agent and/or a competitive market environment, to establish baseline intuition.

  4. We utilize the o and τ notation from Bloom et al. (2013).

  5. See Akcigit et al. (2016), Kremer (1998), and Grinols and Lin (2011), respectively, regarding these three patent monetization approaches.

  6. In the US, said renewal fees are (as of September 1, 2023) $2000, $3760, and $7700, respectively, for ‘large’ entities (with lower fees for ‘small’ and ‘micro’ size entities). For full particulars, see https://www.uspto.gov/sites/default/files/documents/USPTO-fee-schedule_current.pdf.

  7. Kremer (1998, 1145) writes “The Daguerreotype example indicates that buying patents may increase inventors’ incentive to patent discoveries, rather than relying on trade secrecy.”

  8. On p. 29, they state: “For the group [of pharmaceuticals] as a whole, the replacement of patents with the intertemporal bounty led to welfare gains with a present value of $538 billion.”

  9. See https://www.patentforecast.com/2021/05/27/where-are-spacexs-patents-its-trade-secrets-strategy-is-fraught-with-peril/.

  10. See, e.g., Gerlagh et al. (2014), Noailly and Smeets (2015), Acemoglu (2016), Amore and Bennedsen (2016), Langinier and Chaudhuri (2020), and Barbieri et al. (2023).

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Acknowledgements

We appreciate encouragement and several helpful suggestions from the editor and from two anonymous referees; from participants at the Next Space 2021 European Symposium (particularly to symposium organizer Sébastien Rouillon); and from session participants at the New York State Economics Association 2021 meeting and at the Association of Environmental and Resource Economists 2022 meeting. An earlier version of this paper circulated with the title “The Economics of Waste Management with Intellectual Property Rights: The Case of Satellite Debris Mitigation in Low Earth Orbit.”

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  1. Economics Department, Rochester Institute of Technology, Rochester, USA

    Jeffrey Wagner

  2. Syracuse Law School, Syracuse, USA

    Zachary Grzelka

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  1. Jeffrey Wagner
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Correspondence to Jeffrey Wagner.

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Wagner, J., Grzelka, Z. Constellation IP and environmental quality. Lett Spat Resour Sci 17, 7 (2024). https://doi.org/10.1007/s12076-024-00370-2

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