What are the benefits and limitations of the patent system?

June 15th, 2008


The Benefits. Benefit to the country is that the patent system encourages innovation. Benefit to the inventor/technical community is that one or more patents can provide a government-sanction on what amounts to a market monopoly on the invention. That monopoly protection provides part of the financial justification to invest in a new product, process, or other new venture, and can be an important piece of value in securing financing for the project. Overall, patent rights can serve as protection against copycat competitors for the life of the patent(s). Patents can be secured in almost all countries. The number of countries where patent rights is sought is balanced against the cost in the respective countries and the expected costs in those countries.

Limitations. The greatest limitations we hear from our clients relate to (i) costs to secure patent rights (ii) costs to enforce patent rights, and (iii) difficulties in enforcing patent rights once the patents are granted. Difficulties enforcing patent rights include weak statutory laws in some countries, reluctance of judges to enforce the law, and unpredictability of the court system.

However, quality patents typically are enforceable in the US.

The patent is a start. Looking at value, having one or more patents does not guarantee financial success. The patented technology still has to be coupled with a quality business plan; and that business plan must be executed successfully.

One patent may not be enough. Where the market for the new product is developed with a high degree of success, competitors have a great incentive to try to get around your patent(s) so they can legally compete in the market. In such situation, history teaches us that it is unlikely that a single patent will successfully keep out the competition. Rather, you need to continue developing new versions of the product, and protecting those new versions, as well as any versions you can think of that might successfully compete with your product.

Balancing the interests of the patent holder with those of others. A societal limitation to the patent system is that some products such as cell phones, and other electronic devices as well, include technology which is covered by a large number of patents which belong to a variety of owners. In this case, a large number of patents need to be licensed in order for the phone manufacturer to be able to build the phone. This can discourage new manufacturers from setting up shop because of the large up-front investment in legal analysis and licensing arrangements, just in order to avoid unnecessary litigation.

Another societal limitation is that some inventions seem so good that they should be available to all people; for example new drugs. Yet drug companies can set the prices so high as to price some users out of the market. Certain segments of society want the drug companies to lower prices in order to increase availability to all. The drug companies want the price high to capture a reward on the investment which corresponds with the risks they take in developing new drugs. The patent system sets up the financial incentive which can limit availability, while society asks for universal availability at lower cost. The patent system is set up to put the patent owner in control of the outcome of that tension.

The greater good lies where? There are those who argue that putting society in control of the outcome of that tension will save lives in the short term. There are others who argue that giving a long term incentive and control to the patent owners is in the long term interest of society because it keeps an ongoing incentive to continue to develop new drugs that can eventually be available to all without the layer of patent costs.