Why There Are Too Many Patents in America

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After dismissing a high-profile suit between Apple and Motorola, one of our leading jurists discusses the problems plaguing America's intellectual property system.

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(U.S. Patent and Trademark Office)

Recently, while sitting as a trial judge, I dismissed a case in which Apple and Motorola had sued each other for alleged infringement of patents for components of smartphones. My decision undoubtedly will be appealed, and since the case is not yet over with it would be inappropriate for me to comment publicly on it.

But what I am free to discuss are the general problems posed by the structure and administration of our current patent laws, a system that warrants reconsideration by our public officials.*

U.S. patent law confers a monopoly (in the sense of a right to exclude competitors), generally for 20 years, on an invention that is patented, provided the patent is valid -- that is, that it is genuinely novel, useful, and not obvious. Patents are granted by the Patent and Trademark Office and are presumed valid. But their validity can be challenged in court, normally by way of defense by a company sued by a patentee for patent infringement.

With some exceptions, U.S. patent law does not discriminate among types of inventions or particular industries. This is, or should be, the most controversial feature of that law. The reason is that the need for patent protection in order to provide incentives for innovation varies greatly across industries.

The prime example of an industry that really does need such protection is pharmaceuticals. The reasons are threefold. First, the invention of a new drug tends to be extremely costly--in the vicinity of hundreds of millions of dollars. The reason is not so much the cost of inventing as the cost of testing the drug on animal and human subjects, which is required by law in order to determine whether the drug is safe and efficacious and therefore lawful to sell. Second, and related, the patent term begins to run when the invention is made and patented, yet the drug testing, which must be completed before the drug can be sold, often takes 10 or more years. This shortens the effective patent term, which is to say the period during which the inventor tries to recoup his investment by exploiting his patent monopoly of the sale of the drug. The delay in beginning to profit from the invention also reduces the company's recoupment in real terms, because dollars received in the future are worth less than dollars received today. And third, the cost of producing, as distinct from inventing and obtaining approval for selling, a drug tends to be very low, which means that if copying were permitted, drug companies that had not incurred the cost of invention and testing could undercut the price charged by the inventing company yet make a tidy profit, and so the inventing company would never recover its costs.

So pharmaceuticals are the poster child for the patent system. But few industries resemble pharmaceuticals in the respects that I've just described. In most, the cost of invention is low; or just being first confers a durable competitive advantage because consumers associate the inventing company's brand name with the product itself; or just being first gives the first company in the market a head start in reducing its costs as it becomes more experienced at producing and marketing the product; or the product will be superseded soon anyway, so there's no point to a patent monopoly that will last 20 years; or some or all of these factors are present. Most industries could get along fine without patent protection.

I would lay particular stress on the cost of invention. In an industry in which teams of engineers are employed on a salaried basis to conduct research on and development of product improvements, the cost of a specific improvement may be small, and when that is true it is difficult to make a case for granting a patent. The improvement will be made anyway, without patent protection, as part of the normal competitive process in markets where patents are unimportant. It is true that the easier it is to get a patent, the sooner inventions will be made. But "patent races" (races, induced by hope of obtaining a patent, to be the first with a product improvement) can result in excessive resources being devoted to inventive activity. A patent race is winner take all. The firm that makes an invention and files for a patent one day before his competitors reaps the entire profit from the invention, though the benefit to consumers of obtaining the product a day earlier may be far less than the cost of the accelerated invention process.

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Richard A. Posner

Richard Posner is an author and federal appeals court judge. He has written more than 2500 published judicial opinions and continues to teach at the University of Chicago Law School. More

Richard A. Posner worked for several years in Washington during the Kennedy and Johnson Administrations. He worked for Justice William J. Brennan, Jr, the Solicitor General of the U.S., Thurgood Marshall, and as general counsel of President Johnson's Task Force on Communications Policy. Posner entered law teaching in 1968 at Stanford and became professor of law at the University of Chicago Law School in 1969. He was appointed Judge of the U.S. Court of Appeals for the Seventh Circuit in 1981 and served as Chief Judge from 1993 to 2000. He has written more than 2500 published judicial opinions and continues to teach at the University of Chicago Law School. His academic work has covered a broad range, with particular emphasis on the application of economics to law. His most recent books are How Judges Think (2008), Law and Literature (3d ed. 2009), A Failure of Capitalism: The Crisis of '08 and the Descent into Depression (2009). He has received the Thomas C. Schelling Award for scholarly contributions that have had an impact on public policy from the John F. Kennedy School of Government at Harvard University, and the Henry J. Friendly Medal from the American Law Institute.
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