Patents: Incentive to Invent or Means to Exploitation?
A patent is a type of intellectual property that gives its owner the right to exclude others from making, using, or selling an invention for a limited period of years in exchange for publishing disclosure of the invention.1The article includes material that I published on Patent in New World Encyclopedia, some of which was imported from Wikipedia with history document by terms of the Creative Commons CC-by-sa 3.0 License (CC-by-sa), which may be used and disseminated with proper attribution.. This gives the patent holder a monopoly on a product. The patent holder can choose whether to produce the product and, if it is produced, set any price on the product.
The primary purpose of granting a patent is to enhance social good by encouraging the invention of new products beneficial to members of society. This is accomplished by providing legal protection that enables the inventor to profit from selling the invention without market competition. Patents have greatly served this purpose and are responsible for the creation of many industries and jobs that produce desirable products.
Patents were originally assigned to natural persons and later also assigned to corporations. The compounded the complexity of patent law and also the opportunities for abuse and corruption by the patent holder. Inventors may be required to assign inventions to their employers under an employment contract if they produce the invention while working for pay. The ability to assign ownership rights increases the liquidity of a patent as property. Third parties then own the patents and have the same rights as if they had originally invented the product.
Ethical Problems with Patents
Patent systems today have laws that enable and even protect unethical behavior by patent holders.
- One prominent ethical problem is related to patents on medicine, particularly when people may die without the patented medicine and costs are very high. Sick people are very vulnerable and extortion commonplace because they will any price necessary to stay alive. This is particularly true of publicly-traded stock companies whose goal is profit for investors, and strategic profit rather than conscience determines the price. In the case of insulin, or HIV-AIDS treatments, the government may intervene to lower prices. However, in the case of the COVID-19 vaccines or treatments where a government pays the bill, manufacturers may extort governments or collude with politicians to receive an inflated price and hide the long-term costs to citizens.
- A second problem is a company buying patent rights from the inventor with the intention of raising the price. While the inventor may receive an acceptable personal windfall, the trading of patents does not serve society, which was the original purpose of the patent. The patent buyer neither invented the product nor served the public interest, but profits from buying someone else’s invention at the public expense. This is an example of the abuse or hijacking of the patent system.
- A third ethical problem is the patenting of a product that received development funding from the government. In this case, taxpayers are paying part of the cost of the research and, arguably the developer is working for the government. This would be similar to a corporation receiving a patent invented by an employee who was paid to do the research. Government-developed products should be in the public domain because they are developed with public funds. It is unethical for individuals or corporations to profit at public expense.
- A fourth ethical problem is related to government agencies that approve the use of patented products that carry a potential risk of harm to the public. This could be medicines, airplanes, pesticides, or other toxic materials. Frequently, officials in the regulatory agencies collude with producers to bias approval of new patented items, later to be found unsafe.
Economic Problems with Patents
The most obvious criticism of patents is that they violate the principle of free trade. However, the history of patents reveals other negative economic consequences:
- They can block innovation by making it difficult for inventors to invent without spending lots of time and expense on patent research and applications. In the U.S. this averages $10,000 to $30,000 and in Europe around €32,000. Plus, patents often have to be frequently renewed.
- Patents also tend to lead to lower quality products, as is the case with any product that has a monopoly. Buyers are forced to buy watever the producer makes and competition that would drive improvements is prohibited. This is sometimes referred to as a “tragedy of the anti-commons.”
- Patents weaken the public domain and innovation that comes from it. Patent thickets, or “an overlapping set of patent rights,” in particular slow innovation.
- Broad patents inhibit companies from commercializing products that might be covered under them but are not on the market, limiting the variety of products on the market.
- Patent “trolls” often produce poorly written patents for the sake holding the development of a product hostage to extortionary fees or for suing companies for a windfall. One article reported that in 2011US businesses incurred $29 billion in direct costs because of patent trolls.2‘Patent trolls’ cost other US bodies $29bn last year, says study. BBC (June 29, 2012).
- Lawsuits brought by “patent assertion companies” made up 61% of all patent cases in 2012, according to the Santa Clara University School of Law.3Goldman, David (July 2, 2013). “Patent troll: ‘I’m ethical and moral’,” CNN Business.
- Patents apply a “one size fits all” model to industries with differing needs.
- Rent-seeking by owners of pharmaceutical patents have also been a particular focus of criticism as unethical, as the high prices they charge put life-saving drugs out of reach of many people.
Patent Reform Concepts
There are many anti-patent initiatives as a reaction to the abuse, corruption, and negative economic consequences of patents. These tend to reflect either/or thinking and would lead to the negative economic effects of not having patents. A midway position between current patent systems and anti-patent proposals is patent reform.
The purposes of patent reform should be twofold:
- Eliminate unethical use of patents and price gouging. And reduce corruption and abuse of patents. This reduces public harm.
- Continue to provide incentives to invent. This increases public good.
There are reforms that could be put in place. While current patent holders abusing patents and corrupted politicians will likely resist such reforms, citizens and their representatives should begin demanding them. Below are some reforms that could greatly improve patent systems.
- Require mandatory subrights sales to other producers. This will limit price-gouging while still providing a windfall to the patent holder. A common fee of 10% royalties for subrights would only raise the market price of the product by 10%, essentially giving the patent holder a 20% windfall on every product sold by another producer.
- Require the government to buy patents on critical products like medicines for a significant price. This would put the product in the public domain while giving the patent holder a windfall. Poor people would not have to pay unaffordable prices to stay alive. Perhaps the government could pay by triple or quadruple the development cost to the inventor.
- Place patents on any product produced with public funding in the public domain. This would deny proffiteering on the taxpayers by patent holders and governments.
- Prohibit the resale of patents. This would not prevent price gouging, but it would reduce corruption.
- Prohibit the ownership of patents by corporations whose stocks are publicly-traded on a stock exchange. This would greatly reduce corruption and somewhat reduce price gouging.
- Early retirements of patents on products not brought to market—say 5-7 years. This would inhibit patenting a product for purposes preventing its development, in order to continue to exploit a less desirable product.
There are many incentives embodied in the patent system: the incentive to invent in the first place; the incentive to disclose the invention once made; the incentive to invest the sums necessary to experiment, to produce, and finally get the invention on the market; and the incentive to design around and improve upon earlier patents.
However, patent rights also create many negative incentives including price gouging, prevention of inventions from reaching the market, poorer quality products, and many opportunities for corruption.
Most patent systems are in need of reform if they are to best serve both incentives for invention and the public interest. Such possible reforms include mandatory subrights sales, government purchases of patents related to critical needs, and the retirement of patents on products not brought to market in a reasonable period of time.
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