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Thursday, January 10, 2013

Sean Seymore on Laws of Creation

Posted by Sean Seymore

In their new book Laws of Creation: Property Rights in a World of Ideas, Ronald Cass and Keith Hylton confront the debate that has developed within the field of intellectual property as to whether societal gains in increased inventive or creative activity as a result of IP rights are outweighed by the costs associated with protected intellectual products. Using a law and economics approach, the authors look closely at legal doctrines governing patent, copyright, trademark, and trade secret law and convincingly argue that they help create a landscape that inspires innovation and improves incentives for creativity. This post focuses on the patent law chapter.

From a law and economics perspective, patent law seeks to secure for society for benefits of innovation while at the same time minimizing unnecessary costs. The authors argue that various patent doctrines, particularly those related to patentability, have developed in order to strike the right balance.

The authors begin with patent-eligible subject matter. They immediately confront the issue of why we do not grant a patent to the first to discover a mathematical or physical formula. From an inducement perspective, the “out there already” and “scientific truth” explanations are insufficient because property law encourages the discovery of things already in existence. Indeed, the incentive to discover such formulae would be greater if the discoverer could collect money from those who use it. But the authors argue that formulae are unique because the costs of granting patents on them would exceed their innovation-promoting benefit. Given their broad spectrum of potential uses and the inability to determine a formula’s usefulness before completion of the research relying on it, “researchers will tend to be too reluctant, from society’s perspective, to pay for use of the formula.” (p. 53) In sum, patentability “would create a tax not only on research but on an array of related activities . . . .” (p. 54).

The authors then turn to the three basic criteria for patentability—novelty, nonobviousness, and utility. Novelty is easy to justify. Allowing patents on inventions that are identical to what is already known confer no benefit to society but impose monopolization costs. The authors rightly observe that if a patent is not needed as an inducement, the benefit of patent protection cannot be invoked as a justification for incurring the costs.

Nonobviousness is also easily justified. The issue is whether the invention—though not identical to what is already known—was within the technical grasp of a person having ordinary skill in the art at the time the invention was made. The inducement argument works here too because a patent is unnecessary since the invention will likely be introduced through ordinary technological progress. In such circumstances, “the cost of patent protection exceeds the likely benefit of encouraging innovation.” (p.67)

The third requirement is utility, which the authors justify on several grounds. They make a Brenner v. Manson argument that if the applicant cannot identify a well-defined and particular benefit to the public, “the costs of taxing future discovery and of monopolizing particular markets would seem to outweigh the benefit.” (p. 63) And to the extent that utility derails the patenting of fraudulent products and processes, the authors contend that the utility requirement reduces costs by enhancing the informational benefits of the patent system. While this is certainly consistent with traditional utility scholarship, there are credible arguments to the contrary. The abstract and imprecise nature of the term “useful” combined with the lack of objective criteria for assessing it make utility the most malleable patentability requirement. As a result, assessing utility can devolve into a subjective value judgment about when or if something should be patentable. History has shown that the Patent Office and courts have denied seemingly fraudulent inventions for a lack of utility when the invention had technical merit and actually worked as described. Society bears a cost when utility thwarts the entry of deserving inventions into the patent system.

I would have welcomed more attention to the enablement requirement, which is often said to lie at the heart of the quid pro quo between the inventor and society. Enablement compels an applicant to submit a disclosure sufficient to teach a person having ordinary skill in the art to make and use the full scope of the claimed invention without undue experimentation. The authors mention that enablement limits claim scope, but it does much more. It secures for society the benefit of innovation by ensuring that the applicant's disclosure will actually enrich public knowledge and that the public will get complete possession of the invention once the patent expires. Patent theory posits that the knowledge gained—which is available to the public as soon as a patent document publishes—will reduce R&D waste, stimulate others to design around the invention, and spur ideas for new ones. In addition, the requirement protects society against from the costs of granting an underserving monopoly which could create roadblocks for other inventors and hinder further innovation.

Overall the chapter provides an interesting overview of patent doctrines through the lens of law and economics. The authors have made a valuable contribution to the scholarly literature on patent theory.

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