Finding the Sweet Spot in Private IP Rights

I. Introduction

Government should implement policies that maximize the social welfare of its citizenry. Among the possibilities for doing so, policies that encourage technical innovation are particularly attractive. A technical innovation, once brought to fruition, has a low recurring cost (compared to alternatives such as, say, welfare programs, which need to be continually funded) and makes future technical innovations possible. While most parties agree that private intellectual property (IP) rights are a necessary part of such a policy, the ideal “nature” and “degree” of private IP rights is highly contentious [1], [2], [3].

This essay argues that patent rights should be recognized only for “platform” technology, and not for mere “incremental” innovation, and further, that this revised definition of patentability can be implemented using current patent law under 35 U.S.C. § 103 [4]. Although the proposed policy would dramatically reduce the overall amount privately-owned IP, it would likely encourage the actual kinds of innovation that increase societal welfare, while avoiding many of the negative side effects of the current patent system.

II. Private IP Rights - The Current Patent System Misses the Sweet Spot

Private IP rights create a strong monetary incentive for people and organizations to develop new technology, but they can also give rise to many undesirable side effects. An ideal technology policy should therefore be carefully crafted to find a “sweet spot” in private IP rights, where inventors have a sufficient incentive to develop the types of inventions that lead to social welfare increases, but where the citizenry is not unduly robbed of quick and cheap access to those inventions.

Unfortunately, the current patent system fails to find this sweet spot. First, the current system makes no effort to identify and deny patentability to technologies that would have been brought to bear even without private IP rights, and it therefore unnecessarily increases the costs of these technologies. Further, the current system fails to encourage the types of innovations that actually increase social welfare because it awards patentability to short-term technology, while denying patentability to long-term and fundamental innovations (which are inherently abstract at their early stages of development). Third, the current system is inefficient. A company may spend millions of dollars a year on the “overhead” of patent litigation and prosecution, or may be deterred entirely from entering the market due to these expenses. Finally, the current system allows inventions to be patented by owners who have no intention of actually using or otherwise making their inventions available to the public. This leads to patent stockpiling, which harms rather than helps the social welfare.

Many current proposals, perhaps out of recognition that today’s “patent culture” is deeply embedded in statute and the day-to-day operation of the Patent and Trademark Office (PTO), do not attempt to address these serious flaws of the current patent system. Rather, they focus on small-scale solutions to less serious problems, such as the optimal amount of "patent-term" or the number of continuing applications that an inventor may file.

III. Platform-Based Innovation

To truly address these flaws, the current patent system should be altered to distinguish between "platform" technology, which should be patentable, and mere "incremental" innovation, which should not be. Further, the system should be changed to allow the government to buy any patented technology at fair market value from the patent owners.

First, history has shown that when technical platforms are widely available to the public (e.g., personal computers and related software), incremental innovation happens automatically through natural human curiosity and experimentation, even without the lure of private IP rights. Therefore, the current proposal correspondingly denies protection to mere “incremental” innovation.

Second, because only “platform” technology would be patentable, the proposed policy would encourage the type of long-term and fundamental research that would tend to produce such platforms, and would correspondingly discourage the expenditure of limited resources on mere “incremental” innovations.

Third, the proposed policy would reduce the overhead costs of obtaining and defending patent rights. This is because, by denying patentability to incremental innovations, fewer patent applications would be filed, and further, the patents that would be granted would be sufficiently different from each other to avoid the confusion and ambiguity that currently leads to many patent infringement lawsuits.

Finally, the proposed takings provision would ensure that patents could not be hidden away or offered to the public at ransom-like prices by nefarious owners, since the government would always have the option of buying the patented technology and dedicating it to the public.

IV. Implementing Platform-Based Innovation

Although the proposed policy represents large-scale change, it could be implemented today by reinterpreting the 35 U.S.C. § 103 non-obviousness requirement of the current patent system. In particular, the PTO could take the position that only "platform" based innovations are “non-obvious,” while "incremental" innovations are always “obvious.”

V. Sources of Resistance and Corruption

If the current proposal is adopted, many fewer patents would issue, leading to less revenue for the PTO. There would likely be resistance to this idea, as Congress is fond of diverting PTO user fees for general use [5], [6]. Further, it is not clear how a "technical platform" could be objectively defined to avoid corruption, nor is it clear who would determine which innovations the government should buy, or what would constitute the “fair market value” for an untested product. However, these sources of resistance and corruption are similar to those that already exist in other areas of government contracting (e.g., defense contracting), and similar preventative measures could be taken in the patent realm to reduce or eliminate these sources.

VI. Conclusion

Patent rights should be recognized only for “platform” technology, and not for mere “incremental” innovation. This revised definition of patentability can be implemented under 35 U.S.C. § 103. Although the proposed policy would dramatically reduce the overall amount of private IP rights awarded, it would likely encourage the actual kinds of innovation that increase societal welfare, while avoiding many of the negative side effects of the current patent system.

-- By SaswatMisra - 13 June 2010