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

I. Improving Quality-of-Life through Technical Innovation

Government should implement policies that maximize the aggregate quality-of-life of its citizenry subject to its available resources. 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 may further enable additional technical innovations in the future (for example, each epoch in computer microprocessor evolution has arrived more quickly than the last, in part because of the knowledge gained in building the previous generation of microprocessors). Therefore, as one part of an overall strategy to maximize aggregate quality-of-life, government should implement policies that disseminate as much technical innovation to as many people as possible, while minimizing the related societal cost of doing so.

Technical innovation comes in many forms, including industrial methods and processes, mechanical devices, and increasingly, software. Societal cost includes: (a) the “excess” time for an innovation to emerge relative to some inherent "earliest-possible time," as well as (b) the “excess” cost of the innovation relative to its natural market price during the time period in which access to the invention is artificially restricted (for example, through competition-limiting intellectual property (IP) rights).

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.

II. The Constitution's Approach: Patents

Interestingly, the Constitution appears to have a vision of how the otherwise broad and aesthetic goal described above (i.e., implementing policy to disseminate as much technical innovation to as many people as possible, while minimizing the related societal cost) should be achieved. Article 1, Section 8, Clause 8 of the Constitution 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 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, the phrase "securing for limited [time]" 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.

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.

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. The amount of patent-term awarded should seemingly depend on a large number of factors, including: 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?)

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

III. The Patent Office - Poorly Implementing Misguided Policy?

Admittedly, it would be difficult or impossible to perfectly adjust the knob based on even a small number of the (mere sampling of) relevant factors identified above. Still, it is surprising that the United States Patent and Trademark Office (USPTO) makes no effort to do so. Instead, the USPTO awards a patent-term of 20 years to every issued patent.

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

The choice of 20 years seems arbitrary. Under this rule, 20 years would be awarded to a small-time inventor, who slaves away at great personal sacrifice to create a new product, and who then “loses” many of these precious years attempting to secure production and marketing for his invention. It seems unsound policy to award the same 20 years of patent-term to a mega-corporation, for a product created using the minimal efforts of a corporate assembly-line “invention” process, for a patent that will predictably and immediately generate millions of dollars in daily profits.

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.

IV. Towards a Solution

Predictably, I do not have a solution to the question posed (i.e., what policy maximally encourages technical innovation so as to improve the aggregate quality-of-life?), but the approach endorsed by the Constitution (and therefore, the patent system) seems misguided. One alternative proposal calls for creating an “efficient market” for buying and selling patent rights ([3] and [4]). Another approach, of my own thinking but certainly 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 approaches are unimpressive. In addition to being susceptible to corruptive influences and findings of unconstitutionality, they are merely "patchwork" solutions based on the existing patent system. The best solution, whatever it may be, is probably more elegant than that.

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

-- By SaswatMisra - 6 March 2010

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.