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Improving Patent Rules
+ Brandon Fuller
By opening more field offices, the U.S. Patent and Trademark Office hopes to facilitate innovation. Yet, as Matt Yglesias points out in a recent column for Slate, granting more patents may not offer much help:
This move was mandated by the America Invents Act of 2011, the most important recent effort to overhaul the country’s badly broken patent system. Unfortunately, both the new offices and the larger legislative framework reflect a fundamental misunderstanding of what’s gone wrong with patents. The underlying assumption is that our major patent problem is that applications are processed too slowly. In fact, the problem is that we’re granting far too many patents, tying up vast swathes of industry in litigation and negotiation rather than innovation.
As Yglesias points out, the proliferation of patents stifles innovation in some sectors more than others but poses a particular problem for the digital sector:
In this space, where the capital costs of innovating are relatively low, invention is driven by competition not monopolies. Practical engineers working in high-tech understand that the patent war is bad for innovation, but disturbingly the big corporate players in the industry are reconciling to it—costing American consumers billions and stifling startups. The government hands out patents so freely that there’s no way to make anything without violating every other big player’s patents. That’s fine for established firms that have had time to assemble (or buy) vast patent arsenals. But it’s a disaster for new entrants, who know that any successful new product they make will be taxed by a storm of litigation once it becomes popular. The real risk of “foregone innovation” is that resources will be shunted away from making great products into hiring lawyers and away from investing in promising new firms into investing in old ones with legacy patent arsenals.
If inefficient patent rules are a bottleneck to innovation, what sorts of rules might offer an improvement over the status quo? Alex Tabarrok offers useful guidelines in his recent e-book Launching the Innovation Renaissance, among them:
- Focus on patenting specific products rather than broad ideas. No one will invest in innovation if they fear that they’ll be subject to legal claims from firms who hold vague patents that loosely cover the space in which they’re operating.
- The strength of a patent should reflect the ratio of innovation-to-imitation costs. In industries where this ratio is low, such as software, we can dramatically shorten the duration of patents without discouraging innovation.
- Add independent-inventor exemptions to patent rules. Since inventions with low innovation-to-imitation costs are more likely to be independently and simultaneously developed, such as an exemption would tend to offer bigger rewards to inventions with high innovation-to-imitation costs.
- Explore alternative mechanisms for rewarding innovation, particularly for sectors where the ratio of innovation to imitation costs is high, such as pharmaceuticals. Possibilities include innovation prizes, patent buyouts, and advance market commitments.