Abstract

This Article continues the use of real options in patent law by taking a step back. The Article proceeds in three parts. Part II describes the concept of real options and catalogs the existing economics and law literature discussing patents as real options. The Article then lays a foundation for previous and future discussions by describing in detail how patents are like real options. Specifically, Part III. identifies the particular patent doctrines that make up the common components of a real option-the option price, the exercise price, the expiration date, and the value of the underlying asset. This descriptive analysis is a necessary first step in developing a robust theory of patents as real optionsa theory that can have specific patent doctrine implications. Part III also describes how patents can be defined as a series of embedded options. From here, Part IV discusses some implications of using real options theory in patent law, and provides a preliminary taste of the benefits of using real options theory in patent law. Real options analysis allows both patent problems and patent solutions to be examined in terms of "macro patent elements"--elements defined by the operational components of a real option. Real options theory also facilitates viewing patents the same way industry views research and development projects-as real options. Finally, there is promise in the underlying enterprise-using the concept of real options to articulate a new theory of the patent system.

Document Type

Article

Publication Date

2009

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