Archive for May, 2008

Patents and Incentives to Commercialize

Posted in Intellectual Property on May 4th, 2008

One of the ways in which the patent system provides incentives to commercialize is the protection it gives to smaller inventors or even smaller companies.  With a patent in hand, an inventor does not have to wait until he finds the funds to produce the item himself, therefore potentially bringing the item to market earlier.  Of course, it is possible that the patenting process itself may delay the process in some cases, but when such revenue does not need to be raised, one can produce the item in question during the application process, or even before, subject to the statutory bar/ novelty restrictions.

It also decreases transaction costs.  Under the alternative, trade secret, an inventor must be careful who he discloses the information to, especially if he is not familiar enough with trade secret law to know he has legal protections there, or if he would not have the resources to sue.  With the legal monopoly in hand, he can more easily seek investors or manufacturers with less worry that secrecy will be violated.  While suit for infringement does present costs, the confidence a patent instills and the deterrence it serves makes this less of a problem.

Similarly, an inventor or company that does not ordinarily manufacture such items has increased ability to license the product.  Disclosure to potential licensees carries much less risk in a parallel fashion.  Indeed, when an item is capable of reverse engineering or when licensing a product is similarly impossible under trade secret (is it ever possible?) the ability to trade permission to manufacture for revenue increases the chances that such rights will fall into the hands of those with the ability to produce the good, bringing it to the public sooner than it would have under a different regime (if it ever would have reached the market at all).

Of course, commercialization is not the only means of extracting public benefit from a patent.  The disclosure provision allows the public to build on the knowledge contained therein.  With the narrow experimental use exception, one can even practice the patented invention in a limited manner to derive further inventions based on the disclosure.  It may also be possible to build on the innovation without actually practicing it, in a theoretical manner.  In either case, it enables one to produce another informational good for the public benefit.

This good is likewise granted to the public in the form of disclosure, if a patent is applied for on the result.  It is also possible that the derivative good is donated to the public domain, if it is disclosed by an academic or student who publishes her findings.  However, in the latter case the ability of the public to use the knowledge is subject to the original patent entitlements.  But they can still be used, in a great hall of mirrors, for invention of still more derivative innovations, increasing exponentially the public knowledge on the matter.  With the ability to cross-license for use of the derivative invention, the ability to pay for use of the original, or the expiration of the foundational patent, this good can even reach the public in the form of a commercialized product.