Article I, Section 8, Clause 8 of the United States Constitution grants Congress the power “[t]o promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” From this clause, Congress formed what is now known as the United States Patent and Trademark Office (USPTO). One function of the USPTO is to grant patents to inventors for their patentable inventions. A patent may provide a limited monopoly right to an inventor in exchange for public disclosure of the invention, a trade-off intended to promote innovation.
Despite this intent, a highly debated topic regarding patent systems is whether a patent system actually promotes innovation. An editorial published in The Economist entitled “Time to Fix Patents” states that a patent system does not promote innovation, but instead actually blocks innovation. A reply editorial published in Forbes entitled “Do Patents Really Promote Innovation? A Response to The Economist by Marshall Phelps suggests that patents are strongly correlated to increased innovation, knowledge sharing, and economic growth.
The Economist editorial submits that patents are supposed to spread knowledge, but fail “because patent-lawyers are masters of obfuscation.” For clarity, Merriam-Webster’s collegiate dictionary defines obfuscation as to make obscure, or to confuse. As a Patent Attorney, I can state that I have never intended to draft a patent application to obscure or confuse, but do acknowledge that I often write in an abstract manner. A patent may be enforceable for up to twenty years from the filing date of the application, and technology advancements can be significant during that period of time. To put twenty years into perspective, the first generation of the ubiquitous iPhone® device was released less than ten years ago on June 29, 2007, with the subsequent generations of the device including new and improved technologies. When a Patent Attorney drafts a patent application for an invention, the Patent Attorney must try to cover advances in technology from the first to later generations of that invention, a process often requiring an abstract form of language in patent applications.
To support its assertion that a patent system does not promote innovation, The Economist editorial stated “[a] decade-old study reckons that in 2005, without the temporary monopoly patents bestow, America might have saved three-quarters of its $210 billion bill for prescription drugs.” The editorial additionally stated “[a]n early study found that newcomers to the semiconductor business had to buy licenses from incumbents for as much as $200m.” With these statements as the basis for an argument the patent system is flawed, The Economist editorial provides recommendations to improve the patent system. Namely, The Economist editorial suggests including a “use it or lose it” rule where patents would expire if the invention is not brought to market, strengthening the requirement for non-obviousness, and reducing length of patents.
In his reply to the editorial published by The Economist, Phelps questions whether patents set innovation back. Phelps writes “[e]conomists have repeatedly demonstrated that inventors are driven primarily by the expectation of profiting from owning the rights to their inventions.” To support his assertion, Phelps references The Democratization of Invention: Patents and Copyrights in American Economic Development, in which author Zorina Khan observes that people are “stimulated by higher perceived returns or demand-side incentives to make long-term commitments to inventive activity.” Phelps additionally cites to R&D and the Patent Premium for additional support, which determined that Firms earned a 50% average premium when the innovation is patented, as compared to the no patenting case. This premium is noteworthy, potentially supporting the assertion by Phelps and Khan that inventors may be incentivized by higher returns with patented products. Conversely, authors of The Economist editorial may refer to this premium as unnecessary, wasteful, and actually contributing to the reduction of overall innovation.
Phelps additionally supports his assertion that patents promote knowledge-sharing and innovation by referencing Experimentation, Patents, and Innovation by Acemoglu, Bimpikis, and Ozdaglar. This article suggests that “patents may improve the allocation of resources by encouraging rapid experimentation and efficient ex-post transfer of knowledge across firms.” Phelps also points to a study by the Organization for Economic Co-operation and Development (OECD), which found “stronger levels of patent protection are positively and significantly associated with inflows of high-tech product [and] expenditures on R&D.” In his concluding remarks, Phelps recommends that a strong patent system is needed, but stops short of stating there is conclusive proof a patent system results in increased innovation.
After working with inventors for many years, I have found that inventors are primarily driven by the benefits provided by a strong patent system. The possibility of monetary gain appears to increase the likelihood that inventors will disclose their invention and take a product to market. Additionally, the limited monopoly of a patent provides small businesses and individual inventors (particularly those without manufacturing capability) a foundation upon which to work with manufacturers and retailers to effectively compete in a global economy.