Technical Innovation and the Patent System

I. Increasing Quality-of-Life using 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, technical advancements are a particularly attractive way to realize quality of life increases. A particular technical advancement, once brought to fruition, has a low on-going cost (compared to alternatives such as, say, welfare programs, which need to be continually funded) and further enables additional technical advancements in the future (for example, each epoch in computer microprocessor evolution has arrived more quickly, in part because of the knowledge gained in building the previous generation of microprocessors). Therefore, to increase the aggregate quality of life of its citizenry, government should implement policies that provide the most quality-of-life improving technical advancements ("innovations") 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 account for opportunity cost, i.e., the cost incurred due to: (a) the “excess” time for an innovation to emerge relative to some inherent baseline, as well as (b) the “excess” above-market price of the innovation after it has emerged but during which the citizenry’s access to it is artificially restricted (for example, through competition-limiting intellectual property (IP) rights).

II. The Constitution's Approach: Patents

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. In particular, 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, this clause reduces the multi-faceted goal described above 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 for which a patent owner enjoys private and exclusive rights to her innovation) to a "sweet spot" 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 would, of course, 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 could possibly take into account additional factors such as the intended use of the patent - does the inventor actually seek to bring the patented innovation to bear, or is she simply going to add it to her "stockpile" so as to scare potential competitors from even entering her market? Further, patent-term would ideally be adjusted to account for the (troubling) scenario in which an inventor is awarded a patent that eliminates her incentive to develop still-better innovations, at least, while her patent is covered by patent-term. (For example, consider a hypothetical publicly-owned corporation that patents a drug to keep cancer patients alive but with moderate discomfort - what is this corporation's financial incentive to develop a new drug to keep the same patients alive, but with no discomfort?)

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

It would without a doubt be laborious to adjust the patent-term knob based on even a small number of the factors identified above. What is surprising, however, is that the United States Patent and Trademark Office (USPTO) makes absolutely no effort to do so. Rather, the USPTO arbitrarily awards every issued patent a patent-term of 20 years from the date on which the patented innovation was first disclosed to the public. Under this rule, a patent-term of 20 years is awarded to a brilliant small-time garage inventor, who slaves away at great personal sacrifice to create a new product, and who may then “burn” many years of his patent-term as he attempts to secure production and marketing for his invention. It seems illogical that the same patent-term, 20 years, would be awarded 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 make billions in excess of what would have been necessary to foster in them an "inventive incentive" ([1]). On the other hand, naturally inventive but resource-strapped individuals and small organizations are subject to strategically filed and frivolous patent infringement lawsuits, which divert their scarce resources away from creating new and innovative products ([2]).

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) certainly 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 to me. In addition to being susceptible to corruptive influences and findings of unconstitutionality, they are simply "patchwork" solutions based on the existing patent system. The real solution, whatever it may be, is probably more elegant than that.

-- By SaswatMisra - 1 March 2010

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