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Innovation, according to economic research, is essential for economic development.[1] But, in terms of promoting or stifling Innovation, what role do patents play? It’s a never-ending debate with plenty of passionate viewpoints from legal experts, economists, entrepreneurs, and business titans, all of which are discussed here to help you understand the real issues. Patent: Does it promote or stifle innovation?

Patents have been used for decades. In fact, there is historical evidence that patent rights were granted and accepted in ancient Greece as early as 500 BCE. The Venetian Patent Statute of 1474, established in the Republic of Venice, was, however, the world’s first documented codified patent system. Despite the fact that this statue is nearly 550 years old, it still represents reality. However, simply accepting patents as a fundamental legal right does not answer the question of whether they promote or hinder innovation.

What is a patent?

A patent is an exclusive right given for an invention, which is a product or process that introduces a novel method of doing something or a novel technological solution to a problem. To obtain a patent, the inventor must reveal technical details about the invention in a patent application. In practice, the patent owner has the sole right to prohibit or restrict anyone from commercially using the patented invention. In other words, patent rights prevent anyone from commercially manufacturing, using, distributing, importing, or selling the invention without the patent owner’s permission.

A patent is a limited and relatively difficult to obtain the form of intellectual property, particularly in India. It can be awarded to an inventor:

  1. For invention or inventive achievement in the field of technology.
  2. For the production, production, modification, or improvement of the particular machine, article, or process for a particular end or purpose.
  3. For the improvement of any device in relation to any article.

How long is a patent? Patents are typically owned for 20 years (India), 40 years (Europe), or “the term of the grantee’s exclusive right to bring claims in patent infringement cases,” whichever expires first. Generally, however, they may last up to 20 years or expire at the end of the patent term, whichever is longer.

What is the role of patents in Innovation?

Should we anticipate a decline in Innovation if patents are not permitted to cover intellectual property? There is a school of thought that believes invention is largely a natural process and that innovators will always find the most effective way to improve it. As a result, patent protection is superfluous. Others, including the late Nobel laureate David Baltimore, believe that technology advances more quickly when patents are granted to spur Innovation, allowing innovators to reap the rewards. Both theories are unconvincing. What are the real factors that lead to Innovation? According to research published in the journal Science and Engineering Ethics, the most critical considerations are the consistency of ideas, adequate resources, and the use of the right people.

Over the last 50 years, economists have noticed that patents continue to promote ex-ante Innovation—that is because of the possibility of profiting from these innovations, they lead people to invent. In an environment characterized by cumulative or sequential Innovation, blocking patents result in patent rights overlap between sequential innovators, having a contrasting impact on R&D. On the one hand, conventional wisdom holds that stronger patent security strengthens the protection of existing inventions and increases their value to patent holders. On the other hand, a recent claim against patent protection asserts that stronger patent protection stifles Innovation by vesting current patent holders with excessive control, which they use to seize surplus from subsequent innovators rather than providing additional Innovation.[2]

Patent: Does it promote or stifle innovation?

Numerous studies support the argument that patents promote innovation, while others suggest the opposite. For example:

  1. In 2012, Dr. Ron D. Katznelson and Dr. John Howells examined the impact of Edison’s incandescent lamp patent (S. Patent No. 223,898). They concluded that the patent did not only stifle innovation but actually ‘stimulated downstream development,’ resulting in ‘new commercially significant technologies [including] tungsten lamp filaments and phosphorescent lighting. In turn, these innovations led to the fluorescent lamps of today.”[3]
  2. Although “no single piece of evidence” can be “viewed as dispositive,” Stanford University Professor Stephen Haber studied the topic and concluded that the weight of evidence from two very different bodies of scholarship, using very different approaches to evidence—one based on mastering the facts of history, the other based on statistical modeling—yields the same answer: there is a causal relationship between strong patents and innovation.[4]

Arguments Favouring Patent

  1. Patents honor and compensate inventors for commercially viable inventions. As such, they act as a motivator for inventors to innovate. With a patent, an inventor or small business should be certain that they will receive compensation for the time, effort, and money spent creating a technology. In a nutshell, this means they can support themselves through their jobs.
  2. The revenues generated by commercially effective patent-protected inventions enable the funding of additional technical research and development (R&D), increasing the likelihood that even better technology will become available in the future.
  3. When a new technology is introduced to the market, it benefits society as a whole – both directly because it will allow us to accomplish something previously impossible and indirectly through economic opportunities (business growth and employment).
  4. Possessing a patent also enhances a small business’s appeal to investors, who are critical in facilitating the commercialization of technology.
  5. The technological data and business intelligence developed during the patenting process will inspire new ideas and foster the development of new innovations that benefit everyone and may qualify for patent protection.[5]

Argument Against Patent

  1. For subsequent Innovation, transaction costs would be higher. Patent security can also stifle further Innovation, particularly when it restricts access to fundamental information, as is the case in emerging technical areas where Innovation is highly cumulative and patents protect foundational innovations. In this context, excessive protection for fundamental inventions can deter follow-on inventors if the holder of a patent for an important technology denies anyone fair access to the technology.[6][7]
  2. Temporary monopolies, which also have a long-term impact on networks Formation of cartels is a danger.
  3. Too little information: When an inventor obtains a patent, she is required to divulge the invention’s secret sauce in the patent, which is a public document. This enables scientists and engineers to gain knowledge about Innovation and use it to advance the technology. Uncertainty on when and to what extent published information is available under appropriate circumstances. 
    • This occurred with Edison. He was sued for patent infringement after developing a much superior conductor to the patentee’s – but the patent was written broadly enough to cover Edison’s invention.
Edison Electric Light Company
Figure 1 Edison Electric Light Company

4. According to economic research, legal costs and licensing fees burden creative companies to the point that the patent system, on average, discourages Innovation.[8]

Conclusion

“The patent system is broken,” writes Electronic Frontier Foundation founder John Gilmore for Reason.[9] “It hurts innovation and leaves Americans vulnerable to being deprived of the latest innovations simply because they don’t hold the rights to them.” As an economist who supports intellectual property rights, I think the key point to keep in mind is that while the legal structure of intellectual property rights determines who gets to benefit from the fruits of their labour, that’s not the same as the size and diversity of the benefits.

Research from my own and others has repeatedly found that, for the most part, patents are a very small, one-time cash cow. Predictably, with this conclusion in mind, some policy experts have argued for rethinking the patent system in light of the fact that patents don’t generally spur Innovation.[10]

References/ Citations

  1. Romer, Paul M. “The Origins of Endogenous Growth.” Journal of Economic Perspectives, vol. 8, no. 1, 1994, pp. 3–22.
  2. Boldrin, Michele, and David K. Levine. “The Case Against Patents.” 2012.
  3. Katznelson, Ron D., and John Howells. “Inventing-Around Edison’s Incandescent Lamp Patent: Evidence of Patentss Role in Stimulating Downstream Development and Competition.” SSRN Electronic Journal, 2013.
  4. Haber, Stephen. “Patents and the Wealth of Nations.” SSRN, 9 May 2016, papers.ssrn.com.
  5. Lévêque, François & Ménière, Yann. (2004). The Economics of Patents and Copyright. 
  6. Bar-Shalom A, Cook-Deegan R (2002). Patents and innovation in cancer therapeutics: Lessons from CellPro. The Milbank Quarterly, 2002, 80(4)637–676.
  7. Nuffield (2002). The ethics of patenting DNA, A discussion paper. London, Nuffield Council on Bioethics, July 2002 
  8. Bessen, James E. and Meurer, Michael J., The Direct Costs from NPE Disputes (June 28, 2012). 99 Cornell L. Rev. 387 (2014).
  9. Moss, Alex. “Patents.” Electronic Frontier Foundation, www.eff.org/issues/patents.
  10. Machlup, Fritz, and Edith Penrose. “The Patent Controversy in the Nineteenth Century.” The Journal of Economic History, vol. 10, no. 1, 1950, pp. 1–29. 

Kritesh Patel

Kritesh Patel

Final Year Law Student at NAGLS, Bengaluru.

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