Patents are a useful tool in innovation policy—but they aren’t the only tool available. If all you ever see are patents (and patent lawyers), your natural reaction is to use patents to solve policy problems. It’s a normal human bias—the law of the instrument states that humans will reach for a familiar tool (i.e., patents) if they don’t have exposure to alternative options. (Other areas of intellectual property, and IP in general, also suffer from this problem.)
In the innovation context, an over-emphasis on patents risks ignoring other, more appropriate tools for achieving particular goals in innovation policy.
The ultimate goal of the patent system is to promote innovation—or, to use the Constitutional language, to promote progress in the useful arts. One recent definition creates a two-part test for innovation. First, something that is new and improved over what previously existed has to be created. And second, that something must be made available to potential users or brought into use.
It’s a simple definition, but add together enough of these new, improved, and available technologies and you get life-saving drugs, the Internet, electric cars, and every other modern marvel.
Patents Don’t Always Equal Innovation
Despite often being treated as synonymous, patents don’t necessarily equal innovation. A patent on old technology that’s later invalidated obviously isn’t innovative. But even a patent that is novel and non-obvious doesn’t necessarily represent innovation. It’s rare for engineers to use patents as a reference when developing products. In fact, patents often don’t even succeed at the goal of allowing someone who reads the patent to reproduce their invention—one recent study found that “[o]nly about 40% of patent readers thought they could ‘definitely’ or ‘probably’ recreate the invention in the most recent patent they read in their field.” (90% of respondents in that study had a Ph.D.) And even when actively licensed, patents often don’t result in tech transfer. This type of license without knowledge transfer—and without meaningful public One of the primary objectives of the patent system. In return for the government-granted right to exclude that is embodied in the patent, the inventor must disclose to the public through his patent the invention for which protection is sought. Inventors unwilling to disclose their invention to the public may instead opt for trade secret protection. of the invention—represents a tax on the innovation economy, transferring resources from productive entities to unproductive rentiers.
Innovation Doesn’t Always Equal Patents
The flip side is that many innovations aren’t actually Eligible to be patented. To be patent-eligible, an invention must fall into the categories listed in 35 U.S.C. § 101 (i.e., process, machine, manufacture, or composition of matter) and cannot be an abstract idea or a law of nature.. Something that’s new and improved and made available might not be non-obvious—it might be the ordinary creativity of a skilled engineer. Innovative, but not Eligible to be patented. To be patent-eligible, an invention must fall into the categories listed in 35 U.S.C. § 101 (i.e., process, machine, manufacture, or composition of matter) and cannot be an abstract idea or a law of nature..
Many products incorporate this type of innovation, the steady progress of ordinary skill. And with additional capabilities for machine-aided invention—for example, the use of AI to find patterns in data or to generate candidate molecular structures for drugs—becoming available every day, this ordinary progress will be likely to accelerate. Just because these improvements might not result in patents does not mean that they don’t represent innovation. Much of the Internet runs on open-source software made available for all to use and improve. Undoubtedly, that’s innovation—and it’s intentionally done without patents.
Non-Patent Innovation Mechanisms
In order to decide what tools might be preferable to patents to generate a given innovation, we need to know what other tools are available. The below examples are certainly not exhaustive, but represent a set of alternative models.
Direct Research Spending
The simplest approach to creating innovation is just to buy it by directly spending money on research. This policy tool has been heavily utilized by China, as one example—reportedly, China plans to directly fund tens of billions into AI research and more than $100 billion into semiconductor industry development. The U.S., while typically less generous when it comes to direct government funding of research, still provides significant research grants. In fact, the Administration’s most recent supplemental budget request adds approximately $1 billion in requested funding for AI research and development.
Direct research spending is relatively effective if you know what you want to develop and have an idea of how to go about doing so. But it might not help if you don’t know how to reach a goal or if you don’t even know what the goal ought to be.
A non-patent exclusivity looks a lot like a patent, in some ways—in both cases, you’re giving someone the right to prevent others from illegitimate gain for unpermitted use of their invention. But a non-patent exclusivity doesn’t come with the constraints that a patent does. An obvious, but useful, innovation might still be available for a non-patent exclusivity. The primary examples of these exclusivities in American law are the various drug exclusivities tied to regulatory approval—even if unpatented, a new drug still gets five years in which the FDA won’t approve a generic for that drug.
Non-patent exclusivities are useful if you know what general goals you have—for example, more treatments and drugs—but don’t necessarily know how to start getting there, limiting the use of direct spending. And these exclusivities are particularly useful if the industry is already heavily regulated because that provides a simple way to enforce the exclusivity.
The last example of an innovation tool is one that looks even less like a patent—it’s simply letting companies respond to their customers’ needs. Many patents are for the kind of incremental innovation that market forces produce naturally. And while the company might not get 20 years of exclusivity, the first-mover advantage of being the first to market with the right product can be substantial. And even without a first-mover advantage or a patent, an innovative product can still build customer goodwill. The apocryphal story of Elijah McCoy’s lubricator illustrates this—being a relatively simple device, competitors quickly copied it, but customers still asked for the original device. (While this part of McCoy’s story may be true, it’s unlikely that it’s the origin of the phrase “the real McCoy”, likely a corruption of an advertisement for Scotch whiskey—“the real McKay”.) When market forces will produce an innovation without special encouragement, there’s no reason to suffer “the embarrassment of an exclusive patent” or other exclusivity.
If I Had A (Patent) Hammer
There’s a recent example of this problem. In the course of the development of Senators Coons and Tillis’s § 101 bill, they consulted with a wide range of patent attorneys and people whose day-to-day work heavily involves patents. That’s useful—as a patent attorney, I certainly think patent attorneys can contribute to that discussion. But what they failed to do was to consult with people who are affected by patents but don’t work with them every day. Companies like Azure Standard or Laminar Research, whose businesses have been negatively affected by patents, weren’t part of the discussion. And that’s likely why the § 101 discussion has focused on the blunt hammer of abrogating 200 years of eligibility, rather than a targeted scalpel like a regulatory exclusivity for diagnostic methods—the people in the room focus on patents to the exclusion of all other options.
When discussing promoting innovation, we need to look at more than just the innovation-promoting effects of patents—we need to look at the innovation-chilling effects, and determine whether alternative mechanisms might be more suitable.