[blackskad]

In this story, it's regulation that has put some companies at the merci of competitors. Small Startup Y has to hope that Big Corp X wants to license a patent for a fair $ amount. Startup Y has no way to negotiate a large fee down to an acceptable level, pay the expensive licenses or fight in court if they ignore the patent.

Considering two companies with patents, you get the Nash equilibrium where both companies go to court for patent infringement (assuming the plaintiff always wins). The payoff matrix could look like this, where the numbers are the changes in profits in %.

            | court    | not court
  ---------------------------------
  court     | -5 \ -5  |  -15 \ 10
  ----------|----------------------
  not court | 10 \ -15 |  1   \ 1
  ---------------------------------

Assume the profit of the previous year is 14%.

  - If no company goes to court, both profits grow slightly with 1% to 15%.
  - If one company goes to court, and the other doesn't, the plaintiff's profit increases with 10% to 24% and the defendant's drops with 15% to -1% (placing it a loss).
  - If both companies go to court, the profits of both companies drop with 5% to 9%.

If you want a real-life example of this situation, just look at the lawsuits between Samsung & Apple. Probably the only case where they'll evolve to the pareto optimal solution, is when patents no longer exist at all.

A world without patents would allow companies to win customers based on pure attractiveness and features, not by getting competition banned. Note that this isn't the same as giving your key designs away for free. It means I could reverse engineer an iphone touchscreen and create a compatible version, without being sued by anyone. Apple would still have the early mover advantage with existing customers; the consumer would have more/better/cheaper choices and i would have a more attractive product. (Note that this might not be the case for other sectors, like pharma, where it costs a lot to develop a new drug from scratch, rather than the cheaper additive innovations in the tech sector).