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Patent Systems for the 21st Century Knowledge Economy Adam B. Jaffe Fred C. Hecht Professor in Economics Dean of Arts and Sciences Brandeis University.

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Presentation on theme: "Patent Systems for the 21st Century Knowledge Economy Adam B. Jaffe Fred C. Hecht Professor in Economics Dean of Arts and Sciences Brandeis University."— Presentation transcript:

1 Patent Systems for the 21st Century Knowledge Economy Adam B. Jaffe Fred C. Hecht Professor in Economics Dean of Arts and Sciences Brandeis University Advancing Knowledge and the Knowledge Economy National Academy of Sciences, January 11, 2005

2 This paper/presentation is based on my joint work with Josh Lerner of Harvard Business School, presented in our recent book, Innovation and Its Discontents: How our Broken Patent System is Endangering Innovation and Progress, and What do to About It (Princeton University Press, 2004). Neither Josh nor Brandeis University should be assumed to support everything said here.

3 U.S. Patent 6,293,874

4 United States Patent 6,293,874 Armstrong September 25, 2001 User-operated amusement apparatus for kicking the user's buttocks Abstract United States Patent 6,293,874 Armstrong September 25, 2001 User-operated amusement apparatus for kicking the user's buttocks Abstract An amusement apparatus including a user-operated and controlled apparatus for self- infliction of repetitive blows to the user's buttocks by a plurality of elongated arms bearing flexible extensions that rotate under the user's control. The apparatus includes a platform foldable at a mid-section, having first post and second upstanding posts detachably mounted thereon. The first post is provided with a crank positioned at a height thereon which requires the user to bend forward toward the first post while grasping the crank with both hands, to prominently present his buttocks toward the second post. The second post is provided with a plurality of rotating arms detachably mounted thereon, with a central axis of the rotating arms positioned at a height generally level with the user's buttocks. The elongated arms are propelled by the user's movement of the crank, which is operatively connected by a drive train to the central axis of the rotating arms. As the user rotates the crank, the user's buttocks are paddled by flexible shoes located on each outboard end of the elongated arms to provide amusement to the user and viewers of the paddling. The amusement apparatus is foldable into a self-contained package for storage or shipping. An amusement apparatus including a user-operated and controlled apparatus for self- infliction of repetitive blows to the user's buttocks by a plurality of elongated arms bearing flexible extensions that rotate under the user's control. The apparatus includes a platform foldable at a mid-section, having first post and second upstanding posts detachably mounted thereon. The first post is provided with a crank positioned at a height thereon which requires the user to bend forward toward the first post while grasping the crank with both hands, to prominently present his buttocks toward the second post. The second post is provided with a plurality of rotating arms detachably mounted thereon, with a central axis of the rotating arms positioned at a height generally level with the user's buttocks. The elongated arms are propelled by the user's movement of the crank, which is operatively connected by a drive train to the central axis of the rotating arms. As the user rotates the crank, the user's buttocks are paddled by flexible shoes located on each outboard end of the elongated arms to provide amusement to the user and viewers of the paddling. The amusement apparatus is foldable into a self-contained package for storage or shipping.

5 Patents in Crisis In the U.S.: In the U.S.: Persistent, routine questions about patent quality Persistent, routine questions about patent quality Increasing cost and frequency of litigation Increasing cost and frequency of litigation Broad perception of sand in the gears rather than spur to innovation Broad perception of sand in the gears rather than spur to innovation Irresolvable debates about funding, organization, competence of PTO Irresolvable debates about funding, organization, competence of PTO Worldwide Worldwide Debate/uncertainty about the applicability of patent protection to new technologies (software, biotechnology) Debate/uncertainty about the applicability of patent protection to new technologies (software, biotechnology) Somewhere between skepticism and hostility in developing world Somewhere between skepticism and hostility in developing world

6 Why Patents Still Matter Ideas are all around us. Encouraging invention in the purest sense is not a policy problem. Ideas are all around us. Encouraging invention in the purest sense is not a policy problem. But converting invention to innovation is usually expensive (arguably increasingly expensive). But converting invention to innovation is usually expensive (arguably increasingly expensive). This D part of R&D is usually done most effectively in the private sector. This D part of R&D is usually done most effectively in the private sector. Thus fostering the investment that finances development is a KEY policy problem. Thus fostering the investment that finances development is a KEY policy problem. Patents are one important mechanism for protecting investments in development. Patents are one important mechanism for protecting investments in development. Patents are particularly important to Venture Capitalists and other outside investors. Patents are particularly important to Venture Capitalists and other outside investors.

7 What About Software, Etc.? Contention: Efforts to restrict the domain of patents (excluding specific technologies such as software) are harmful, and will ultimately fail, weaken the patent system, or both. Concession: Economic theory suggests that the optimal patent system is not uniform across technologies, and allows for the possibility that patent protection is not desirable for certain technologies

8 Its a Bad Idea While theory is clear that weaker/shorter/narrower protection might be appropriate for technologies with certain characteristics, no convincing case has been made that specific technologies really have these characteristics. While theory is clear that weaker/shorter/narrower protection might be appropriate for technologies with certain characteristics, no convincing case has been made that specific technologies really have these characteristics. Characteristics said to be unique about innovation in these new industries are easily identifiable in technologies for which we consider patents appropriate. Characteristics said to be unique about innovation in these new industries are easily identifiable in technologies for which we consider patents appropriate. Abysmal application of patent principles, rather than inapplicability of the principles, is what has created bad experience with patents on software, business methods, and biotechnology. Abysmal application of patent principles, rather than inapplicability of the principles, is what has created bad experience with patents on software, business methods, and biotechnology.

9 It Wont Work Anyway Drafters of patent applications will always be more ingenious than the writers of rules, so proscribing patent protection for classes of technology will simply drive applications under cover. Drafters of patent applications will always be more ingenious than the writers of rules, so proscribing patent protection for classes of technology will simply drive applications under cover. Like all rent-creating systems, patent law is extremely subject to capture, so it is very unlikely that efforts at differentiation will long remain moored to good arguments for such differentiation. Like all rent-creating systems, patent law is extremely subject to capture, so it is very unlikely that efforts at differentiation will long remain moored to good arguments for such differentiation.

10 So, Whats Wrong? The shallow problems: The shallow problems: Under-resourced, inexperienced patent examiners Under-resourced, inexperienced patent examiners New technologies for which there is little experience New technologies for which there is little experience Bad court decisions Bad court decisions Bad political decisions Bad political decisions The deep problems: The deep problems: Our patent systems do not have the appropriate structures and incentives to perform the fundamental function of determining who should be granted patent rights. Our patent systems do not have the appropriate structures and incentives to perform the fundamental function of determining who should be granted patent rights. Government-created property rights inherently have both significant benefits and significant costs, significant winners and significant losers. Government-created property rights inherently have both significant benefits and significant costs, significant winners and significant losers.

11 The Examination Model is Failing All patent offices (POs) worldwide operate with some version of an examination model, in which the PO evaluates applications for patent rights by examining the application in the light of a known or knowable body of information, to determine if the application meets standards of novelty, non-obviousness and other statutory requirements. All patent offices (POs) worldwide operate with some version of an examination model, in which the PO evaluates applications for patent rights by examining the application in the light of a known or knowable body of information, to determine if the application meets standards of novelty, non-obviousness and other statutory requirements. In the 21 st Century Knowledge Economy, the necessary body of knowledge is neither known nor knowable in this way. In the 21 st Century Knowledge Economy, the necessary body of knowledge is neither known nor knowable in this way.

12 Why Examination Cant Work Number of applications is too large, and too hard to know ex ante which are the important ones. Number of applications is too large, and too hard to know ex ante which are the important ones. Necessary knowledge is widely dispersed. Necessary knowledge is widely dispersed. Necessary knowledge is rapidly changing. Necessary knowledge is rapidly changing. Economic return to deep knowledge will always be hirer in the private sector than in the PO, so best examiners will always be hard to retain. Economic return to deep knowledge will always be hirer in the private sector than in the PO, so best examiners will always be hard to retain.

13 An Alternative: An Endogenous Information Model Instead of expecting the PO to have or find the information necessary for validity determinations, we should build systems that endogenously generate the necessary information. Instead of expecting the PO to have or find the information necessary for validity determinations, we should build systems that endogenously generate the necessary information. Necessary information includes at least: Necessary information includes at least: Prior art Prior art Obviousness Obviousness What it means to reduce to practice What it means to reduce to practice Which validity determinations are of sufficient importance to merit significant social resources Which validity determinations are of sufficient importance to merit significant social resources

14 Desirable Properties for a New Model Devotes de minimus resources to most applications, since most applications are unimportant (amended Rational Ignorance principle) Devotes de minimus resources to most applications, since most applications are unimportant (amended Rational Ignorance principle) For important applications, creates opportunity and incentive for parties who hold information about novelty and obviousness to communicate that information to the PO For important applications, creates opportunity and incentive for parties who hold information about novelty and obviousness to communicate that information to the PO Minimizes opportunity and incentive for opportunistic interference by competitors with valid applications Minimizes opportunity and incentive for opportunistic interference by competitors with valid applications

15 Jaffe-Lerner Proposal Escalating opportunities for third-party information provision; costs and substance of intervention increase in parallel, to endogenously generate increasing scrutiny as called for Escalating opportunities for third-party information provision; costs and substance of intervention increase in parallel, to endogenously generate increasing scrutiny as called for Opportunity for pre-grant opposition (submission of information, with no opportunity for third-party participation in process Opportunity for pre-grant opposition (submission of information, with no opportunity for third-party participation in process Opportunity for post-grant re-examination: Opportunity for post-grant re-examination: New examiner New examiner Full rights for challenger as party to proceedings Full rights for challenger as party to proceedings Prejudice in subsequent proceedings limited to issues specifically heard and addressed Prejudice in subsequent proceedings limited to issues specifically heard and addressed Fee shifting to discourage frivolous rehearing requests Fee shifting to discourage frivolous rehearing requests

16 A Patent System for the Whole World Strong Intellectual Property rights do intrinsically benefit the creators of such property more than the users. Strong Intellectual Property rights do intrinsically benefit the creators of such property more than the users. Industrialized countries need to work on tuning patent systems to increase their value to less-developed countries. Industrialized countries need to work on tuning patent systems to increase their value to less-developed countries. For technologies with high value in both developed and developing countries, need to find ways to support multi- tiered pricing (near marginal cost in poor countries, but with appropriate protections against arbitrage) For technologies with high value in both developed and developing countries, need to find ways to support multi- tiered pricing (near marginal cost in poor countries, but with appropriate protections against arbitrage) For technologies most valuable in the developing world, new incentive mechanisms are needed. For technologies most valuable in the developing world, new incentive mechanisms are needed.

17 Research Needs Mechanism Design: problem is one of information revelation Mechanism Design: problem is one of information revelation Lessons from other disciplines? Lessons from other disciplines? Cross-institutional comparisons: what can U.S. learn from European and Japanese experiences? Cross-institutional comparisons: what can U.S. learn from European and Japanese experiences? Linkages between theory and measurement: what are empirical counterparts of Linkages between theory and measurement: what are empirical counterparts of scope scope size of inventive step size of inventive step complementarity of inventions complementarity of inventions Etc. Etc. Mechanisms to encourage technology transfer/sharing within the patent system Mechanisms to encourage technology transfer/sharing within the patent system

18 Conclusion Protection patents afford to investment in development are just as relevant in the 21 st century as in the 19 th and 20 th. Protection patents afford to investment in development are just as relevant in the 21 st century as in the 19 th and 20 th. New technologies and the explosion of information have rendered obsolete the traditional examination model for determining who should get patents. New technologies and the explosion of information have rendered obsolete the traditional examination model for determining who should get patents. Solution is not restriction of patents to old domains. Solution is not restriction of patents to old domains. Need to develop new systems for determining patent validity, which endogenously generate the needed information from private parties. Need to develop new systems for determining patent validity, which endogenously generate the needed information from private parties. A truly global patent system will also have to accommodate the needs of poor countries for affordable access to new technology. A truly global patent system will also have to accommodate the needs of poor countries for affordable access to new technology.


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