Alternative responses to anti-commons: state financing of latecomer patenting

Governments in developing countries, especially large middle-income ones such as China, often face a dilemma: How can they govern intellectual property rights (IPR) to alleviate “anti-commons” problems, such as patent thickets, without also restraining technological development? Existing scholarship has not yet explored the role of extra-legal institutions such as state financing for patenting (SFP) (e.g., subsidies and financial awards for patenting) as a potential response to this challenge. Drawing on hierarchical regression analyses of original survey data from Chinese firms, I find that SFP in China appears to have temporarily alleviated some anti-commons problems. It has accomplished this by providing additional resources to recipient firms in industries where technology is highly cumulative to accumulate patents for cross-licensing. In turn, recipient firms were able to bargain to reduce patent litigation risks and reduce royalties owed to others. However, China has simultaneously experienced negative policy externalities from sub-optimally designed SFP. I conclude with recommendations about how governments can learn from China’s experiences.