Version 15 - Finished revised first paper

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

III. Platform-Based Innovation

IV. Implementing Platform-Based Innovation

V. Sources of Resistance and Corruption

VI. Conclusion

Version 14 - Working draft of my revised first paper (*in progress*)

Finding the Sweet Spot in Private IP Rights

I. Introduction

Government can improve social welfare by implementing policy that encourages technical innovation. While most parties agree that private intellectual property (IP) rights (or their equivalent incentives) are a necessary part of such a policy, the exact “nature” and “degree” of such rights has proven to be highly contentious [1], [2], [3]. The balance between private and public IP rights is almost universally acknowledged to be sub-optimal, but change is hard to come by, as today’s “patent culture” is deeply embedded in United States statues and the day-to-day operation of the Patent and Trademark Office (PTO). Therefore, most proposals to improve the balance between public and private IP rights focus only on small-scale changes.

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 the current machinery of current patent law under 35 U.S.C. § 103 [4]. Although the proposed policy would dramatically reduce the overall amount of private IP rights awarded to citizens and organizations for their inventions, it would likely encourage the actual kinds of innovation that increases societal welfare, while also avoiding many of the negative side effects of the current patent system.

II. Private IP Rights and Technical Innovation

III. The Current Patent System Misses the Sweet Spot

IV. Platform-Based Innovation

V. Implementing Platform-Based Innovation

VI. Sources of Resistance and Corruption

Finding a Sweet Spot in Private IP Rights

I. Technical Innovation Improves Social Welfare

• Insert an edited version of the first paragraph from my first draft of this essay here

II. The Trade-Off Between Private and Public IP Rights

• In encouraging technical innovation, there is a trade-off between private and public IP rights
• Create an inventive incentive, but don't unduly rob the citizenry of quick and cheap access (and don't distort the way in which technical innovation is done!)
• One extreme - such rights should be temporary and highly-limited. For example, private IP rights would last for short period of time, or would be in the form of a large payout from the government to work on a project (i.e., "pseudo rights")
• The other extreme - rights should be all but absolute. Long or infinite rights, little government intervention, etc.
• Virtually everyone agrees that maximizing technical innovation requires some degree of private ownership rights (or incentives that are equivalent to private rights - "pseudo rights" and profitability), but the appropriate degree of rights is highly contentious (for example, Eben believes that such rights should be a very small fraction of what they are today)
• The patent system is an attempt to strike the right balance between private rights and public rights

III. The Patent Office

• The patent system fails to find the sweet spot in private IP rights
  • 20 years - no matter what. Highly suboptimal
• The patent system distorts the process innovation
  • resources that could go to R&D are diverted to patent litigation and prosecution
  • resources that could go to long-term and fundamental innovation (which is often unpatentable) are diverted instead to short-term ideas that are patentable
• Leads to stockpiling without intention to use
• Inhibits sharing and collaboration
• While the above issues are certainly sub-optimalities, many current proposals (e.g., adjusting "patent-term") amount to small-scale solutions for a large-scale problem

IV. The Sweet Spot - Platform-Based Innovation

• A more appropriate way to slice private and public IP rights would be to distinguish between "platform" technology, which should be patentable (though subject to mandatory "takings" by the gov't) and "incremental" innovation, which should not be patentable.
• in technical areas where the platforms are widely available (e.g., computer software), the "incremental" innovation happens automatically through natural human curiosity and experimentation - there is little or no need to provide private IP rights
• but building platforms are typically resource intensive and require the profit-motive (e.g., the cellular network, etc.)
• therefore, the gov't should grant private IP rights so as to create platforms, but then buy out these platforms and make them available to the public
• there is no need to grant private IP rights to encourage "incremental" innovation

V. A Proposed Implementation

• This is a fairly drastic call for change, and will not be adopted overnight (see Section VI for sources of resistance)
• The practical way to bring about change - implement change through the Section 103 non-obviousness requirement of the current patent system to better capture the trade-off between private and public IP rights
  • i.e., by reinterpreting Section 103, "platform"-based innovation can be deemed non-obvious (and therefore patentable), while "incremental" innovation can be deemed obvious (and therefore unpatentable)
• Although a ground up approach would be better - not as realistic at the current time

VI. Anticipated Consequences and Sources of Resistance

• Many, many, fewer patents would issue - less revenue for the USPTO
  • Where does the money collected by the PTO currently go? is it funneled to the general US treasury?
    • if so, there is likely to be much resistance...
• Who decides what is a "technical platform" for the purposes of granting a patent?
• Source of corruption - who decides what platforms the government is willing to buy out? How do we determine just compensation? (not as clear as with real-property based takings)

VII. Conclusion

-- By SaswatMisra - 23 May 2010

Also the innovation lost as a result of the exclusionary mode of production and distribution, including anti-commons failures, inhibition of sharing and collaboration, and parasitic rent-seeking. Also the misallocation of resources towards less important or socially valuable activities that are patentable than other activities that cannot generate monopoly rents.

No, this is retrospective ahistorical analysis. As I have previously pointed out in numerous places, in its late eighteenth-century context, this provision allows Congress to permit otherwise noxious social conduct for the purpose of encouraging immigration.

Which should be a clue that this isn't the policy of the legislation in the first place.

You seem to be suggesting that the PTO has some discretion in this matter, which it does not. The term is statutory.

Under this system, some patent owners gain, at the eventual expense of the public, billions of dollars over what would have been necessary to create an "inventive incentive" ([1]). On the other hand, truly inventive but resource-strapped individuals and small organizations have little incentive to create, given the potentially inadequate patent-term that awaits them (and their incentive is further reduced by other artifacts of the patent system, including the expense of dealing with the USPTO and the threat facing a strategically-filed patent-infringement lawsuit if their invention threatens one of the mega-corporations ([2])).

This argument bears no relationship to the realities of the two industries (pharmaceuticals and digital information technology) that actually make significant use of the patent system, which has become vestigial over trade secrecy for almost all other lines of commerce.

You don't consider the actual, elegant and optimal solution: the abolition of patent law altogether.

I am skeptical of your skepticism. It isn't based on the strongest available arguments. It doesn't reflect realities of the industries actually using the patent system. It doesn't treat the economics accurately (even right-wing economists would have observed that patents are equivalent from an "incentives" point of view to a direct reward system for inventions, which is actually the system we employ in the fully-socialized biomedical research sector where we are outstandingly innovative). It gets the history fundamentally wrong. It fails to distinguish the roles of the Congress and the PTO, thus missing the primary sources of corruption in both institutions. It makes no analysis of the actual costs of the system, which it inaccurately summarizes at the beginning and never discusses again. In short, it seems to me, this is propaganda for the system dressed up as skepticism: it creates a straw man for the forces of ownership gleefully to knock over.

You need to decide whether the essay is shilling for the owners or not. If it is, it should eat the same dogfood the owners offer in all the other venues. If it isn't, you need to deal with the real issues instead of phony ones.

First, this clause suggests that the above-described goal should be achieved through private IP-rights, i.e., patents, as is evident from the words "securing," "exclusive," and "their." Second, through the phrase "securing for limited [time]," this clause suggests that the above-described goal is solved simply by turning a “knob” that controls patent-term (i.e., the duration of time during which a patent owner enjoys private and exclusive rights to her innovation) to the point where an inventor receives just enough incentive to invest her resources into creating new innovations. Turning the knob any further than necessary would, of course, award too much patent-term and therefore unduly increase the societal cost associated with the patent.

Even accepting this Constitutionally-endorsed formulation as a sensible one, it seems difficult or impossible to determine how far to turn the knob in practice. For starters, the amount of patent-term awarded should depend on the likelihood of commercialization, the time needed to recoup investment costs, and the expected time until a substantially similar innovation would have been developed by another inventor. The intended use of the patent also matters (does the inventor actually seek to bring the patented innovation to bear, or is she simply going to add it to her "stockpile" to scare potential competitors from entering her market?). Further, patent-term should be adjusted downward in a scenario where the grant of a patent eliminates an inventor's incentive to develop still-better innovations, especially when she is in the best position to do so. (Consider a hypothetical corporation that corners the market by patenting a drug that can keep a patient alive, albeit with constant physical pain - what is this corporation's financial incentive to develop a better drug that can keep the same patient alive with no pain?)

Improving Quality-of-Life through...Patents?

I. Improving Quality-of-Life through Technical Innovation

Improving Quality of Life with...Patents?

I. Improving Quality-of-Life with Technical Innovation

III. The Patent Office - Poorly Implementing Misguided Policy?

I. Increasing Quality-of-Life using Technical Innovation

III. The Patent Office - A Poor Implementation of a Bad Policy?

I. Quality-of-Life and Technical Innovation

II. The Constitution's Approach: Patents

IV. Towards a Solution

Technical Innovation and the Patent System

I. Increasing Quality-of-Life Through Innovation

Government should implement policy that maximizes the aggregate quality of life of its citizenry, subject to its available resources. Technical advancements are a particularly attractive way for government to realize quality of life increases, as a particular technical advancement, once brought to fruition, has a low running cost (compared to alternatives such as, say, welfare programs, which need to be continually funded in order to realize a corresponding continual increase in quality of life) and further builds a foundation for future technical advancements (for example, each epoch in computer microprocessor evolution has built on the generation of microprocessors that came before it). Therefore, it makes sense for government to implement policies that encourage technical advancements (or “innovations”). Broadly speaking, government should implement policies that provide the most quality-of-life improving technical innovation to the most people at the least societal cost.

Technical innovation may come in many forms, including industrial methods and processes, mechanical devices, and increasingly, software. Societal costs are hard to quantify, but should include opportunity cost, i.e., the cost incurred when an innovation is not created, or is not disseminated as rapidly and cheaply as possible to the citizenry. Components of opportunity cost should include both the “excess” time for an innovation to emerge, as well as “excess” cost of the innovation after it has emerged, but during which the citizenry’s access to the innovation is artificially restricted (for example, through competition-limiting intellectual property (IP)-rights).

II. The Constitution's Approach - The Patent System

Interestingly, the Constitution transforms the open ended and aesthetic goal described above, i.e., implementing policy that provides the most quality-of-life improving technical innovation to the most people at the least societal cost, by imposing certain limitations on how such a goal should be achieved. Article 1, Section 8, Clause 8 of the Constitution, in which the patent system is rooted, grants Congress the power to “promote the progress of science. . . by securing for limited times to. . . inventors the exclusive right to their respective. . . discoveries.”

First, this clause strongly endorses private and exclusive IP rights (i.e., patents) apparently assuming that such rights are necessary to “promote the progress of science.” Second, the clause takes the multi-faceted goal described above and reduces it into a simple, one-dimensional optimization problem: maximizing aggregate quality of life through technical innovation is apparently solved simply by adjusting a “knob” that controls patent-term (i.e., the duration of time over which the inventor enjoys “exclusive right[s]” to her innovation) to a sweet spot, the point at which the inventor receives just enough patent term so that she is sufficiently motivated to invest her time and resources in creating new innovations. To give her any additional patent term beyond this would be to unduly rob the citizenry of rapid and low cost access to her patented innovations.

Even accepting this Constitutionally-endorsed formulation as a sensible one, it seems difficult or impossible to determine how to adjust the patent-term knob in practice. The amount of patent-term awarded should certainly depend on straightforward factors such as the likelihood of commercialization, the time needed to recoup investment costs, and the expected time until a substantially similar innovation would be developed by another inventor. A more intricate calculation of patent-term would possibly take into account the intended use of the patent - does the inventor actually seek to bring the patented innovation to market, or is she simply going to add it to her “stockpile,” useful only for scaring potential competitors from entering her market? Further, patent term would ideally be adjusted to account for the (troubling) scenario in which an inventor is awarded a patent (say, on a drug on that keeps a cancer patient alive for his entire natural life, but with moderate discomfort), and that therefore eliminates her incentive to develop still-better innovations (say, a drug that keeps the same patient alive, but with no discomfort) during the time that her patent is in-force.

III. The Patent Office - A Poor Implementation of Bad Policy?

It would be expensive and difficult to determine how to adjust the knob based on even a small number of the factors identified above. What is surprising, however, is that not even a crude attempt is made to do so. Instead, the United States Patent and Trademark Office arbitrarily mandates that every issued patent shall be awarded a patent term of 20 years from the date on which the innovation was first disclosed to the public. Under this rule, the patent-term issued to a brilliant small-time garage inventor, who slaves away at great personal sacrifice to create a new product, and who “loses” many years of patent-term as he secures production and marketing for his invention, is 20 years. It seems illogical that the same patent-term would be awarded to a mega-corporation for a product created using the minimal effort of an assembly-line corporate “invention” process, for a patent that predictably and immediately generates millions of dollars in daily profits.

Under this system, some patent owners make millions in excess of what is necessary to create inventive incentive ([1]). On the other hand, inventive but resource-strapped small companies are subject to frivolously-filed patent infringement lawsuits which divert their scarce resources from creating new and innovative products ([2]).

IV. Towards Solutions

Predictably, I do not have a solution to the question posed (i.e., what policy maximally improves quality of life through technical innovation?). To me, it seems that the approach endorsed by the Constitution (and therefore, the patent system) is wrong. A different approach calls for creating an “efficient market” for buying and selling patent rights ([3] and [4]). Yet another approach, of my own thinking but likely not original, would allow the government to force the sale of certain high-value patents from private hands to the public at prices substantially lower than their “fair market value.” However, these “patch-work” solutions are not appealing. At a minimum, they are susceptible to special interests or are Constitutionally problematic. The solution, whatever it may be, is probably a simple and elegant one.

Maximizing Innovation using the United States Patent System [IN PROGRESS -- EBEN, THIS WILL BE UP BY 2/27, 5PM - SASWAT]

What Should the System Look Like -- Some Practical Suggestions

Some Limitations of a World Without Private IP Rights

Innovation and the United States Patent System

What's The Point?

A Stagnant System

Some Practical Suggestions

Tweaks

Thoughts on a World Without Private IP Rights

Have you ever worked for the Government?

Paper Title

-- By SaswatMisra - 26 Feb 2010

Section I

Subsection A

Subsubsection 1

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