Patent Systems

Patent Systems

Contents of Patent Systems

Contents of this subject matter include:The American Patent System – types of applications, publication of applications, the nominated person, claiming priority, American interactions with PCT system

• The American Patent System – examination of applications for standard and innovation applications, acceptance, divisionals and patents of addition, priority dates, amendments
• The American Patent System – opposition practice, re-examination, entitlement disputes
• The American Patent System – patent term, extension of term, maintenance of patents and applications, revocation, unjustified threats, transitional provisions , appeals, extensions of time, lapsing and withdrawal
• Assignment, licensing, compulsory licenses, Crown use
• International filings: Treaties that affect overseas applications: Paris Convention, TRIPS, Patent Cooperation Treaty
• International filings: general issues that need to be considered with respect to a foreign filing program
• International filings: specific requirements in particular jurisdictions – Canada, China, Japan, South Korea, New Zealand
• US patent practice and procedure
• European Patent Convention practice and procedure
• Validity and infringement searching, circuit layouts, restrictions on patent exploitation in United States
• Plant protection in United States, Budapest Treaty, special issues relating to particular technologies

Reforming the Patent System

The patent system (I concentrate on patents) is supposed to encourage innovation, the foundation of economic progress. It does this by giving patent recipients exclusive control for a specified period of time over use of their patented goods, machinery, processes, or services. It has long been recognized that patents impose costs on society since patents keep out competition, so that the monopoly power of patent holders enables them to raise prices and lower outputs. However, until recent years many other costs of the patent system received little attention, including paradoxically that this system might in fact discourage innovations.
Posner has a very good discussion of many costs of a patent system. These include not only the monopoly power given to patent recipients, but also time-consuming and expensive patent litigation because of overlapping patents, patent trolling to gain control of large numbers of patents not for use but to force compensation through litigation, and the ability to patent minor improvements over existing technologies. One additional important cost is that companies in many developing countries, in particular China, do not worry about patent infringement, and often produce much cheaper copies that undercut patented products. These companies have an advantage over companies in developed countries that refrain from producing patented products because they fear punishment from the courts for infringing patent rights.

Patent infringement lawsuits, copying by companies in developing countries, and many other obstacles to profiting from innovations under the modern patent system not only discourage certain types of patent applications, but may also reduce the incentive to innovate itself. Why apply for a patent if the information in the application makes it easier to produce copies? Moreover, the potential profit from an innovation might be more than dissipated through lengthy patent litigation that involves also the risk of large fines- as in the recently imposed fine on Samsung of over $1 billion for allegedly copying software patented by Apple.

The various harmful effects of the patent and copyright systems encouraged Arnold Plant, an English economist, to publish over 75 years ago two influential articles on why England and other countries would be better off without patents and copyrights. Among other things, he argued that the temporary monopoly power given to patent holders often led to inefficiently high prices and reduced output of patented goods, that many persons would continue to invent even if they could not patent their inventions, and that patents distort innovations in favor of goods and processes that can be patented and away from innovations that cannot be patented. His favorite example of the latter is basic research in the sciences that produced the theory of relativity, the theory of evolution, and in more modern times our understanding of DNA and genes. He believed that the patent system induced some creative scientists to work in areas that could be patented rather than on basic scientific research that could not be patented.

Although ending the patent system is a clean solution to all the problems induced by modern patenting, it clearly is not desirable given the importance of industries like the pharmaceutical industry. Since this industry spends on average hundreds of millions of dollars bringing to market a successful drug, pharmaceutical companies would not invest such large sums without the protection of patents (or without other benefits). Probably the best solution would be to maintain the patent system on drugs and a few other products that are expensive to innovate and cheap to copy, and eliminate patents on everything else. In particular, this means eliminating patents in the software industry, the source of much of the patent litigation and patent trolling.

I admit it is not clear where to draw the line between what should and should not be patentable. However, one can start by eliminating the ability to patent software, and go on from there to prune the number and type of inventions and innovations that are eligible for patent protection. Plant was not right about the desirability of eliminating the patent system, but he erred in the right direction. We should try to move much closer to where he wanted to be, and away from the present system.

Author: Becker, defunct

Antitrust and other Related Issues

As far as the legal architecture is concerned, the antitrust area covers two prohibition rules set out in the Treaty establishing the European Community (EC Treaty). First, agreements between two or more firms which restrict competition are prohibited by Article 81 of the EC Treaty, subject to some limited exceptions. Second, firms in a dominant position may not abuse that position (Article 82 of the EC Treaty). The European Commission is empowered by the EC Treaty to apply these prohibition rules and enjoys a number of investigative powers to that end (e.g. inspection in business and non-business premises, written requests for information etc). It may also impose fines on undertakings which violate EU antitrust rules. All national competition authorities are also empowered to apply fully the provisions of the EC Treaty in order to ensure that competition is not distorted or restricted. National courts may also apply these prohibitions so as to protect the individual rights conferred to citizens by the EC Treaty. “Articles 81 and 82 are now Articles 101 and 102 in the consolidated version of the treaty on the functioning of the European union”.

From the perspective of economics, there is a direct relationship between the sales of innovative products and market structure and, implicitly, the average size of firms in a specific branch. According to the product life cycle, there are many small firms that compete in the first stages of technological development on design, and on combinations of product and market. In this situation, the market structure manifests a low seller concentration. Later in the cycle, when a specific combination of product and market dominates technological development, and when consumers are more inclined towards a particular design, firms have to abandon their unsuccessful product-market combinations in favour of a more successful competing design. Once a dominant design has been established, firms will start to compete on price and economies of scale become an important determinant in order to survive, which can lead to the start of an oligopolistic shake-out.

Many firms that fail to achieve a minimum efficient production scale must sooner or later leave the market, which results in a market dominated by a few large firms competing on price [13]. Nevertheless, firms facing Bertrand competition possess a strong incentive to increase their profit margin through product differentiation, and will therefore reap more sales from new products if their products succeed in time [14]. Small firms, in turn, possess a strong incentive to introduce new products into the market in order to survive competition with current firms. Large firms have an incentive to invest in both process (economies of scale) and product innovation (economies of scope) in order to maintain their market position [15]. Finally, Aghion et al. [16] show that an inverted U-shaped relationship between competition and innovation is a good fit, which challenges both empirical and theoretical findings in the traditional literature.

A patent rewards an invention, a new technology, which sometimes results in creating a new market. In that case, the effect of patents from the time period without the protected invention to the time period with the protected invention is not to restrict competition on markets already existing in the previous period of time, but to create a new market (possibly monopolised, but still better than no market at all). Second, patents offer a substitute to secrecy and involve disclosure, hence they encourage further innovation (i.e. competition of new products against existing ones). Third, patents can serve the creation of new companies by protecting them from competitive strategies based on incumbency, such as size, brand or sunk costs.

Firms tend to patent more of their inventions when they are confronted with more intense competition. Weaker competition, due to regulation or high-entry cost, provides protection other than intellectual property rights (IPRs) to the innovations of the incumbents, which then have little reason to incur the cost of filing IPRs and disclosing their technology. However, as patents in turn reduce ex post the degree of competition on a market, it is difficult to observe correlation between patenting and competition at the market equilibrium.

Author: Victor Rodriguez