Michael J. Burstein.
Patents have become financial assets. They are valued like securities, traded like stocks, and modeled as options. Our discourse about patents increasingly draws from finance. Firms whose business models depend on patent assertion explain that they are providing “liquidity” to the patent market. Those on the other side, which engage in collective defense, talk about using the market to mitigate “patent risk.” Commentators who ordinarily take very different positions about the merits of our current patent system seem to agree that we should make patent markets more efficient. But neither they nor most others ask the logically prior question: should there be robust patent markets at all? This Essay provides a roadmap for answering that question. Taking seriously the analogy between patent markets and financial markets, I demonstrate that there are numerous circumstances in which even well-functioning patent markets will fail to promote innovation. Because “promot[ing] the [p]rogress of [s]cience and useful [a]rts,” rather than achieving efficiency in the purchase and sale of patent assets, is the ultimate goal of the patent system, liquid markets cannot be a panacea. We therefore need to have a different conversation about such markets, in which we seek empirical data about when their operation is socially beneficial, and in which we consider their merits alongside other proposals for patent reform.