PublishedJuly 2, 2020

Counterproductive Patent Incentives

Earlier this year, a pair of economists, Jay Bhattacharya and Mikko Packalen, published a research paper proposing an explanation for why scientific progress appears to have slowed.  Their theory?  An overemphasis on citation count, h-index, and similar metrics for scientists incentivizes them to pursue safe, late-stage research, not the scientific exploration needed to create the breakthroughs that lead to late-stage research. 

In other words, by making the incentive one that most rewards scientists who work in established and developed areas, scientists tend to work in those areas.  Beyond that, the emphasis might also affect who becomes a scientist, tending to push the field towards those who tend to accept the received wisdom while pushing out those who might challenge it or explore new ideas.

The same concerns might well apply to the modern emphasis on increasing the number of issued patents without any consideration for the quality or technological advancement each patent contains.

An Overfocus on Numbers

Essentially every year, the USPTO issues more patents than the previous year.  But that doesn’t mean the pace of innovation has accelerated—in contrast, by most estimates, the pace of innovation has slowed and the cost per innovative idea has increased.  This includes the average R&D cost per patent.  In other words, even as more patents issue, we spend more in R&D for each patent received.

Bhattacharya and Packalen’s research on ideas might provide some explanation here.  It’s extremely common for modern companies to incentivize patent production, at both the individual and corporate level.  This can include significant bounties given to engineers for granted inventions and creation of departments whose entire purpose is to obtain as many patents as possible.  

But if the reward for a patent is indexed to its existence, not its breakthrough value, then engineers and corporations will target their research at creating incremental improvements that are relatively easy to create and patent, rather than unreliable major innovations that are difficult and expensive.  And even if the reward for a patent is indexed to its commercial value, that may still fail to incentivize basic research that leads to breakthroughs.  Risk aversion can lead to avoiding the possibility of an expensive failure, even if the value of a success would be high.

And, as another recent economic analysis of patent value accurately notes, commercial value and scientific value aren’t necessarily related.  As those economists wrote, “a patent may represent only a minor scientific advance, yet be very effective in restricting competition, and thus generate large private rents.”  

By decoupling scientific value from commercial value, modern patents call into question whether they truly meet the Constitutional requirement that they “promote the progress” of the useful arts.

Realigning the Patent Incentive

As a potential example of how Bhattacharya and Packalen’s theory might be born out in patents, examine IBM.  IBM has been the leading (or second-leading) recipient of U.S. patents every year for the last 27 years.  It invests significant resources in ensuring this continues to be the case.  But how much does it really have to show for it?  Almost a decade of declining revenue.  And after decades of emphasizing acquiring patents by the numbers, estimates show that the value and impact of IBM’s patents have declined.  

Another potential example is the use of evergreening in pharmaceuticals.  These patents, typically on minor improvements once the breakthrough has been made, carry excessive commercial reward compared to the scientific value of the innovation.  That might be one reason why major pharmaceutical companies are increasingly failing to develop new drugs themselves, instead turning to acquiring smaller companies for new ideas.

Instead of focusing on and rewarding increasing growth in patent numbers driven by minor incremental advances—the kind that represent the majority of issued patents—Bhattacharya and Packalen suggest incentivizing the kinds of research that lead to truly new developments and giving room for the kind of exploratory science that provides a foundation for these developments.  

In the patent context, what would that look like?  One possibility is raising the bar for non-obviousness by recognizing that the average engineer is skilled and creative and that minor improvements would be generated by those engineers as a matter of course.  If patents are no longer available for those minor improvements, then companies will turn to pursuing major improvements instead.  By changing the incentives to reward major innovations, we can reinvigorate basic research in the U.S. and help reverse the decline in research productivity.

Josh Landau

Patent Counsel, CCIA

Joshua Landau is the Patent Counsel at the Computer & Communications Industry Association (CCIA), where he represents and advises the association regarding patent issues.  Mr. Landau joined CCIA from WilmerHale in 2017, where he represented clients in patent litigation, counseling, and prosecution, including trials in both district courts and before the PTAB.

Prior to his time at WilmerHale, Mr. Landau was a Legal Fellow on Senator Al Franken’s Judiciary staff, focusing on privacy and technology issues.  Mr. Landau received his J.D. from Georgetown University Law Center and his B.S.E.E. from the University of Michigan.  Before law school, he spent several years as an automotive engineer, during which time he co-invented technology leading to U.S. Patent No. 6,934,140.

Follow @PatentJosh on Twitter.

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