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.

-- By SaswatMisra - 26 Feb 2010

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