Intellectual Property & Innovation: Patents

• Study notes on the theory of intellectual property and innovation incentives focus solely on patents due to length constraints.

Introduction

• The chapter presents a selective survey of the literature on the theory of intellectual property and innovation incentives.
• The study aims to outline broad effects identified, emphasizing a range of modeling styles and issues, but only covers patents due to length constraints.

Patent Rights

• A sketch of patent rights and the associated institutional background serves as a reference point for discussing models.
• The study outlines basic theories of intellectual property design and welfare tradeoffs, and considers social goals without intellectual property protection.
• Issues in patent design are examined, starting with single, one-time innovations and progressing to innovations that build on each other or fit together as complements.
• The survey considers enforcement issues and the interplay between competition policy and intellectual property policy.

Patent Right Elaboration

• Elaboration on salient features of the patent right, focusing on the United States and Europe, illustrates the range of policy tools available for patent design.
• Differences between the United States and Europe create a somewhat different patent right, with Europe having a tighter, more expensive, and more industrially oriented version.

Patent Defined

• A patent refers to a temporary property right on an invention, providing the right to exclude others from making, using, or selling the patented property but not guaranteeing the right to practice the innovation.
• Inventor A may not have automatic authorization to exercise her patent if it infringes the patent rights of inventor B
• The patent holder must disclose the invention in a publicly available patent document.
• Disclosure should be helpful to third parties wanting to understand the innovation's nature.
• The underlying idea is not protected, unlike the embodiment of the innovation.
• The features of the innovation are described in a set of claims defining the metes and bounds of the patent.
• Features not claimed are not covered by patent protection. The ex-post interpretation of claims in quickly evolving fields may be challenging.

Examples of Patentable Subject Matter

• Processes, products, compositions of matter, machines, and new and useful improvements can be patented.
• Patentable subject matter in the United States has expanded to include genetic manipulation, software, and business methods.
• "Anything under the sun made by man" could be patentable, according to one decision.
• Patentable subject matter in the United States remains broad compared to other countries.
• There is a philosophical difference between European and the United States views of patents.

Significant Innovation Step

• Most patent systems require a patentable innovation to represent a significant innovative step.
• A strong exclusionary patent right is granted only in exchange for disclosing "valuable" information.
• The requirement of significance differs across countries and has differed over time.
• In the United States, a patentable innovation must be non-obvious and new.
• Judging whether an innovation satisfies patentability conditions is a main role of the US Patent and Trademark Office (USPTO).
• The European Patent Office (EPO) has attempted to unify the inventive step required to qualify for a patent across European states.
• Evaluation of significance is generally an assessment of the magnitude of the innovation in a scientific or technical sense.
• Commercial success can be used ex post as an argument that an innovation was significant.

Exercising Granted Patents

• Once granted, a patent may be exercised, traded, or abandoned.
• Contracts of trade are common, amounting to about 10%-20% of issued patents.
• Licenses can be agreed prospectively or ex ante, specifying sharing arrangements for patents resulting from a research program.
• A range of pricing arrangements, from no price to profit shares can be observed in licensing agreements.

How Patents Differ

• Patents differ from many other property forms because they are temporary rights.
• Patent protection lasts a statutory maximum of 20 years from the filing date.
• In the United States, this is changed from 17 years available from the date of grant prior to 1994.
• Periodic renewal payments are required to maintain the right up to the statutory maximum term
• Patents frequently are allowed to lapse with only about 8% reaching a full term in Europe versus reach term United States.
• This discrepancy is likely due to included translation, maintenance, processing and legal costs.
• Extension of the patent term beyond 20 years is clearly more problematic, and can only be attempted by indirect strategies.
• A "continuation," can be used to attempt something like a term extension in the United States.
• Exploiting so-called "dependent" patents is probably the closest proxy in Europe.

Patent Agreements and Administration

• The basic system of patents used in the United States is set forth in Article 1, Section 8 of the US Constitution.
• Congress has enacted various patent laws and had revisions over time, codified in title 35 of the US Code.
• Congress has created the USPTO to administer these laws and perform other related duties to patent protection.
• Patent laws in various countries, like the United States, are aligned under the TRIPS agreements.
• Key treaties include:
  • the Paris Convention
  • the European Patent Convention
  • and the Patent Cooperation Treaty (PCT)
• In Europe, patents may issue from individual countries' patent office, the EPO, or both.
• Patents may stem from the patent in the specific European country or the United States.
• Administrative body such as the USPTO or EPO reviews patent applications to determine if the invention satisfies minimum patentability standards.
• A patent is denied if the candidate technology does not satisfy the minimum standard.
• This process can often take years, concluding with one out of three being rejected in the United States.
• Exclusivity starts at the issuance patent date, but the patent disclosure's information is published 18 months after the initial filing date.

Patent Enforcement

• Patents are only as strong as their enforcement aspect.
• Enforcement is mainly handled privately in the United States through the court system.
• A patent holder can sue a violator who has unauthorized manufacture or patented material use.
• Infringement suits tend to be extremely expensive and can constitute part of total research expenditure.
• If the court finds for patent holder it may impose an injunction on the violator and have monetary compensation.
• An overall average of 1.5% are ever litigated, and even fewer are ever going to trial.