Thus, I was very interested in Michael Burstein's (Cardozo) draft article on the subject, called Patent Markets: A Framework for Evaluation, which is now on SSRN and forthcoming in the Arizona State L.J.
What I like about the approach of this article is that it takes a step back from the question of whether certain types of parties create a market, and asks instead, is having a market at all a good thing?
Here is the abstract:
Patents have become financial assets, in both practice and theory. A nascent market for patents routinely produces headline-grabbing transactions in patent portfolios, and patent assertion entities frequently defend themselves as sources of liquidity essential for a patent market to function. Much of the discourse surrounding these developments assumes that a robust, liquid market for patents would improve the operation of the patent system. In this Essay, I challenge that assumption and systematically assess the cases for and against patent markets. I do so by taking seriously both the underlying innovation promotion goal of the patent system and the lessons of financial economics, and asking what might be the effects of a market for patents that looked roughly like other familiar markets for stocks, real estate, or secondhand goods.Like other markets, they are good when they are good, and bad when they are bad. Burstein adds a lot of nuance throughout the article, focusing on arguments why markets may be good or not, but without making too many assumptions about any particular technology or patent owner type.
I conclude that, like much in patent law, the effects of robust patent markets are likely to vary with specific technological and business contexts. When there is a close fit between patents and useful technologies, a patent market can support a market for technology that aids in connecting inventors with developers and sources of capital for commercialization. But when that fit breaks down, market pricing could favor litigation over commercialization. Similarly, a liquid patent market might help to allocate the risks of innovation and of patent infringement to the parties best able to bear it, but a kind of moral hazard familiar to the market for subprime mortgages could lead not to more innovation but to more patents, thereby increasing the overall risk in the system. This analysis suggests that we are having the wrong conversation about patent markets. Rather than assuming their utility and asking how to improve them, we should be undertaking empirical research to determine the circumstances in which they will or will not work and exercising caution in invoking the logic of markets in policy debates about the contours of the patent system.
One thing I would add to the article is the importance of timing. Markets early might be better than markets later, even in the same technological contexts. The article would probably put this into the "business context" category, but I think the importance of diffusion, cumulative innovation, and path dependency merit a separate consideration.
In all events, I think the essay adds to the literature and may produce some testable hypotheses as well.