Patent

Intellectual property law

Rights

Authors' rights · Intellectual property · Copyright Database right · Indigenous intellectual property Industrial design rights · Geographical indication Patent · Related rights · Trademark Trade secret · Utility model

Related topics

Fair use · Public domain Trade name

A patent is a type of intellectual property that gives its owner the legal right to exclude others from making, using, or selling an invention for a limited period of years in exchange for publishing an enabling disclosure of the invention. In most countries, patent rights fall under private law and the patent holder must sue someone infringing the patent in order to enforce their rights. In some industries patents are an essential form of competitive advantage; in others they are irrelevant.

The procedure for granting patents, requirements placed on the patentee, and the extent of the exclusive rights vary widely between countries according to national laws and international agreements. Typically, however, a patent application must include one or more claims that define the scope of protection that is being sought. A patent may include many claims, each of which defines a specific property right. These claims must meet various patentability requirements, which in the US include novelty, usefulness, and non-obviousness.

Patents are given to inventors to stimulate the invention of new products. However, patents are also a source of corruption when they are resold to companies for price gouging, or when they are given for products developed with the help of government funding. Reforms to prevent price gouging and corruption could improve patent systems.

Definition

The word patent originates from the Latin patere, which means "to lay open" (i.e., to make available for public inspection). It is a shortened version of the term letters patent, which was an open document or instrument issued by a monarch or government granting exclusive rights to a person, predating the modern patent system. Similar grants included land patents, which were land grants by early state governments in the US, and printing patents, a precursor of modern copyright.

In modern usage, the term patent usually refers to the right granted to anyone who invents something new, useful and non-obvious. A patent is often referred to as a form of intellectual property right, an expression which is also used to refer to trademarks and copyrights, and which has proponents and detractors (see also Intellectual property). Some other types of intellectual property rights are also called patents in some jurisdictions: industrial design rights are called design patents in the US, plant breeders' rights are sometimes called plant patents, and utility models and Gebrauchsmuster are sometimes called petty patents or innovation patents.

The additional qualification utility patent is sometimes used (primarily in the US) to distinguish the primary meaning from these other types of patents. Particular species of patents for inventions include biological patents, business method patents, chemical patents and software patents.

History

Although there is some evidence for a form of patent rights in Ancient Greece in the Greek city of Sybaris, the first statutory patent system is generally regarded to be the Venetian Patent Statute of 1474. Recent historical research has suggested that the Venetian Patent Statute of 1474 was influenced by laws in the Kingdom of Jerusalem that granted monopolies to developers of novel silk-making techniques. Patents were systematically granted in Venice, where they issued a decree by which new and inventive devices had to be communicated to the Republic in order to obtain legal protection against potential infringers. The period of protection was 10 years. As Venetians emigrated, they sought similar patent protection in their new homes. This led to the diffusion of patent systems to other countries.

The English patent system evolved from its early medieval origins into the first modern patent system that recognized intellectual property in order to stimulate invention; this was the crucial legal foundation upon which the Industrial Revolution could emerge and flourish. By the 16th century, the English Crown would habitually abuse the granting of letters patent for monopolies. After public outcry, King James I of England (VI of Scotland) was forced to revoke all existing monopolies and declare that they were only to be used for "projects of new invention." This was incorporated into the Statute of Monopolies (1624) in which Parliament restricted the Crown's power explicitly so that the King could only issue letters patent to the inventors or introducers of original inventions for a fixed number of years. The Statute became the foundation for later developments in patent law in England and elsewhere.

Important developments in patent law emerged during the 18th century through a slow process of judicial interpretation of the law. During the reign of Queen Anne, patent applications were required to supply a complete specification of the principles of operation of the invention for public access. Legal battles around the 1796 patent taken out by James Watt for his steam engine established the principles that patents could be issued for improvements of an already existing machine and that ideas or principles without specific practical application could also legally be patented.

The English legal system became the foundation for patent law in countries with a common law heritage, including the United States, New Zealand and Australia. In the Thirteen Colonies, inventors could obtain patents through petition to a given colony's legislature. In 1641, Samuel Winslow was granted the first patent in North America by the Massachusetts General Court for a new process for making salt.

The modern French patent system was created during the Revolution in 1791. Patents were granted without examination since inventor's right was considered as a natural one. Patent costs were very high (from 500 to 1,500 francs). Importation patents protected new devices coming from foreign countries. The patent law was revised in 1844 – patent cost was lowered and importation patents were abolished.

The first Patent Act of the U.S. Congress was passed on April 10, 1790, titled "An Act to promote the progress of useful Arts." The first patent under the Act was granted on July 31, 1790 to Samuel Hopkins for a method of producing potash (potassium carbonate). Revised patent law was passed in 1793, and in 1836 a major revision to the patent law was passed. The 1836 law instituted a significantly more rigorous application process, including the establishment of an examination system. Between 1790 and 1836 about ten thousand patents were granted. By the American Civil War about 80,000 patents had been granted.

When U.S. patents began, it was assumed that patents would be held by individuals. The U.S. Founders specifically forbid the operation of East India and Hudson's Bay companies because of their quasi-monopoly status and ties to the King of England and the cronyism that awarded profits to shareholders. At the end of the 19th century the Supreme Court decision on Santa Clara County v. Southern Pacific Railroad Company (1886) determined that a corporation is a legal "person" with respect to economic rights. Thus, corporations could develop, hold, or purchase patents. This opened a pandora's box of ethical issues regarding patents and corporations, particularly as related to monopoly, price gouging, and serving the public interest.

Law

A patent does not give a right to make or use or sell an invention. A patent provides the right to exclude others from making, using, selling, offering for sale, or importing the patented invention for the term of the patent, which is usually 20 years from the filing date subject to the payment of maintenance fees. From a practical standpoint, however, a patent is better and perhaps more precisely regarded as conferring upon its proprietor "a right to try to exclude by asserting the patent in court," for many granted patents turn out to be invalid once their proprietors attempt to assert them in court. A patent is a limited property right the government gives inventors in exchange for their agreement to share details of their inventions with the public. Like any other property right, it may be sold, licensed, mortgaged, assigned or transferred, given away, or simply abandoned. If an inventor obtains a patent on improvements to an existing invention which is still under patent, they can only legally use the improved invention if the patent holder of the original invention gives permission, which they may refuse.

Challenges

In most jurisdictions, there are ways for third parties to challenge the validity of an allowed or issued patent at the national patent office; these are called opposition proceedings. It is also possible to challenge the validity of a patent in court. In either case, the challenging party tries to prove that the patent should never have been granted. There are several grounds for challenges: the claimed subject matter is not patentable subject matter at all; the claimed subject matter was actually not new, or was obvious to the person skilled in the art, at the time the application was filed; or that some kind of fraud was committed during prosecution with regard to listing of inventors, representations about when discoveries were made, etc. Patents can be found to be invalid in whole or in part for any of these reasons.

Infringement

Patent infringement is the violation of the patent right, when a third party, without authorization from the patentee, makes, uses, or sells a patented invention. Patents, however, are enforced on a national basis. The making of an item in China, for example, that would infringe a US patent, would not constitute infringement under US patent law unless the item were imported into the US.

The Doctrine of Equivalents protects from someone creating a product that is basically the same product as a patented product with just a few modifications.

Contributory Infringement is participating in another’s infringement. This could be a company helping another company to create a patented product or selling the patented product which is created by another company.

Inducement to Infringement is when a party induces or assists another party in violating a patent. An example of this would be a company paying another party to create a patented product in order to reduce their competitor’s market share.

Gray market goods exist when a patent owner sells a product in country A, wherein they have the product patented, then another party buys and sells it in country B, where a different person owns a patent. With either national or regional exhaustion being the law in country B, the owner may still be able to enforce their patent rights; however, if country B has a policy of international exhaustion, then the patent owner will have no legal grounds for enforcing the patent in country B as it was already sold in a different country.

Enforcement

Patents can generally only be enforced through civil lawsuits (for example, for a US patent, by an action for patent infringement in a United States federal district court), although some countries (as France and Austria) have criminal penalties for wanton infringement. Typically, the patent owner seeks monetary compensation (damages) for past infringement, and seeks an injunction that prohibits the defendant from engaging in future acts of infringement, or seeks either damages or injunction. To prove infringement, the patent owner must establish that the accused infringer practises all the requirements of at least one of the claims of the patent. (In many jurisdictions the scope of the patent may not be limited to what is literally stated in the claims, for example due to the doctrine of equivalents.)

An accused infringer has the right to challenge the validity of the patent allegedly being infringed in a counterclaim. A patent can be found invalid on grounds described in the relevant patent laws, which vary between countries. Often, the grounds are a subset of requirements for patentability in the relevant country. Although an infringer is generally free to rely on any available ground of invalidity (such as a prior publication, for example), some countries have sanctions to prevent the same validity questions being relitigated. An example is the UK Certificate of contested validity.

Patent licensing agreements are contracts in which the patent owner (the licensor) agrees to grant the licensee the right to make, use, sell, or import the claimed invention, usually in return for a royalty or other compensation. It is common for companies engaged in complex technical fields to enter into multiple license agreements associated with the production of a single product. Moreover, it is equally common for competitors in such fields to license patents to each other under cross-licensing agreements in order to share the benefits of using each other's patented inventions. Freedom Licenses like the Apache 2.0 License are a hybrid of copyright/trademark/patent license/contract due to the bundling nature of the three intellectual properties in one central license. This can make it difficult to enforce because patent licenses are granted differently from copyrights, and would need multiple contracts.

Ownership

The plate of the Martin ejector seat of the military aircraft, stating that the design is covered by multiple patents in Britain, South Africa, Canada and "others." Dübendorf Museum of Military Aviation.

In most countries, both natural persons and corporate entities may apply for a patent. In the United States, however, only the inventor(s) may apply for a patent, although it may be assigned to a corporate entity subsequently and inventors may be required to assign inventions to their employers under an employment contract. In most European countries, ownership of an invention may pass from the inventor to their employer by rule of law if the invention was made in the course of the inventor's normal or specifically assigned employment duties, where an invention might reasonably be expected to result from carrying out those duties, or if the inventor had a special obligation to further the interests of the employer's company. Applications by artificial intelligence systems, such as DABUS, have been rejected in the US, the UK, and at the European Patent Office on the grounds they are not natural persons.

The inventors, their successors or their assignees become the proprietors of the patent when and if it is granted. If a patent is granted to more than one proprietor, the laws of the country in question and any agreement between the proprietors may affect the extent to which each proprietor can exploit the patent. For example, in some countries, each proprietor may freely license or assign their rights in the patent to another person while the law in other countries prohibits such actions without the permission of the other proprietor(s).

The ability to assign ownership rights increases the liquidity of a patent as property. Inventors can obtain patents and then sell them to third parties. The third parties then own the patents and have the same rights to prevent others from exploiting the claimed inventions, as if they had originally made the inventions themselves.

Governing laws

The grant and enforcement of patents are governed by national laws, and also by international treaties, where those treaties have been given effect in national laws. Patents are granted by national or regional patent offices. A given patent is therefore only useful for protecting an invention in the country in which that patent is granted.

Commonly, a nation or a group of nations forms a patent office with responsibility for operating that nation's patent system, within the relevant patent laws. The patent office generally has responsibility for the grant of patents, with infringement being the remit of national courts.

The authority for patent statutes in different countries varies. In the UK, substantive patent law is contained in the Patents Act 1977 as amended. In the United States, the Constitution empowers Congress to make laws to "promote the Progress of Science and useful Arts ...". The laws Congress passed are codified in Title 35 of the United States Code and created the United States Patent and Trademark Office.

There is a trend towards global harmonization of patent laws, with the World Trade Organization (WTO) being particularly active in this area. The TRIPS Agreement has been largely successful in providing a forum for nations to agree on an aligned set of patent laws. Conformity with the TRIPS agreement is a requirement of admission to the WTO and so compliance is seen by many nations as important. This has also led to many developing nations, which may historically have developed different laws to aid their development, enforcing patents laws in line with global practice.

Internationally, there are regional treaty procedures, such as the procedures under the European Patent Convention (EPC) [constituting the European Patent Organisation (EPOrg)], that centralize some portion of the filing and examination procedure. Similar arrangements exist among the member states of ARIPO and OAPI, the analogous treaties among African countries, and the nine CIS member states that have formed the Eurasian Patent Organization. A key international convention relating to patents is the Paris Convention for the Protection of Industrial Property, initially signed in 1883. The Paris Convention sets out a range of basic rules relating to patents, and although the convention does not have direct legal effect in all national jurisdictions, the principles of the convention are incorporated into all notable current patent systems. The Paris Convention set a minimum patent protection of 20 years, but the most significant aspect of the convention is the provision of the right to claim priority: filing an application in any one member state of the Paris Convention preserves the right for one year to file in any other member state, and receive the benefit of the original filing date. Another key treaty is the Patent Cooperation Treaty (PCT), administered by the World Intellectual Property Organization (WIPO) and covering more than 150 countries. The Patent Cooperation Treaty provides a unified procedure for filing patent applications to protect inventions in each of its contracting states along with giving owners a 30 month priority for applications as opposed to the standard 12 the Paris Convention granted. A patent application filed under the PCT is called an international application, or PCT application. The steps for PCT applications are as follows:

1. Filing the PCT patent application

2. Examination during the international phase

3. Examination during the national phase.

Alongside these international agreements for patents there was the Patent Law Treaty (PLT). This treaty standardized the filing date requirements, standardized the application and forms, allows for electronic communication and filing, and avoids unintentional loss of rights, and simplifies patent office procedures.

Sometimes, nations grant others, other than the patent owner, permissions to create a patented product based on different situations that align with public policy or public interest. These may include compulsory licenses, scientific research, and in transit in country.

Application and prosecution

A non-refundable filing fee for a patent application must be paid to start an application process. The applicant will want to ensure that their material is patentable before this. Patentable material must be man-made, anything natural cannot be patented. For example, minerals, materials, genes, facts, organisms, and biological processes cannot be patented, but if someone were to take this and utilize an inventive, non-obvious, step with a natural item to create something man-made, the end result, could be patentable. That includes man-made strains of bacteria, as was decided in Diamond v. Chakrabarty. Patentability is also dependent on public policy, if it goes against public policy, it will not be patentable. An example of this is patent a man-modified higher life-form, such as a mouse as seen in Harvard College v. Canada. Additionally, patentable materials must be novel, useful, and a non-obvious inventive step.

A patent is requested by filing a written application at the relevant patent office. The applicant may be the inventor or its assignee. The application contains a description of how to make and use the invention that must provide sufficient detail for a person skilled in the art (i.e., the relevant area of technology) to make and use the invention.

Claims generally consist of three parts:

• a preamble;
• a transition phrase such as "comprising"; and
• a list of components, steps, and relationships that the applicant deems essential to defining the invention.

In some countries there are requirements for providing specific information such as the usefulness of the invention, the best mode of performing the invention known to the inventor, or the technical problem or problems solved by the invention. Drawings illustrating the invention may also be provided.

The application also includes one or more claims that define what a patent covers or the "scope of protection."

After filing, an application is referred to as "patent pending." While this term does not confer legal protection, and a patent cannot be enforced until granted, it serves to provide warning to potential infringers that if the patent is issued, they may be liable for damages.

Once filed, a patent application is "prosecuted." A patent examiner reviews the patent application to determine if it meets the patentability requirements of that country. If the application does not comply, objections are communicated to the applicant or their patent agent or attorney through an Office action, to which the applicant may respond. The number of Office actions and responses that may occur vary from country to country, but eventually a final rejection is sent by the patent office, or the patent application is granted, which after the payment of additional fees, leads to an issued, enforceable patent. In some jurisdictions, there are opportunities for third parties to bring an opposition proceeding between grant and issuance, or post-issuance.

Once granted, the patent often requires renewal fees to keep the patent in force. These fees are generally payable on a yearly basis. Some countries or regional patent offices (e.g. the European Patent Office) also require annual renewal fees to be paid for a patent application before it is granted.

Costs

The costs of preparing and filing a patent application, prosecuting it until grant, and maintaining the patent vary from one jurisdiction to another, and may also be dependent upon the type and complexity of the invention, and on the type of patent.

The European Patent Office estimated in 2005 that the average cost of obtaining a European patent (via a Euro-direct application, i.e. not based on a PCT application) and maintaining the patent for a 10-year term was around €32,000. The London Agreement on May 1, 2008 slightly reduced this amount, since fewer translations are required.

In the United States, in 2000 the cost of obtaining a patent (patent prosecution) was estimated to be from $10,000 to $30,000 per patent. When patent litigation is involved (which in year 1999 happened in about 1,600 cases compared to 153,000 patents issued in the same year), costs increase significantly: although 95% of patent litigation cases are settled out of court, those that reach the courts have legal costs on the order of a million dollars per case, not including associated business costs.

Alternatives

A defensive publication is the act of publishing a detailed description of a new invention without patenting it, so as to establish prior art and public identification as the creator/originator of an invention, although a defensive publication can also be anonymous. A defensive publication prevents others from later being able to patent the invention.

A trade secret is information that is intentionally kept confidential and that provides a competitive advantage to its possessor. Trade secrets are protected by non-disclosure agreement and labour law, each of which prevents information leaks such as breaches of confidentiality and industrial espionage. Compared to patents, the advantages of trade secrets are that the value of a trade secret continues until it is made public, whereas a patent is only in force for a specified time, after which others may freely copy the invention; does not require payment of fees to governmental agencies or filing paperwork; has an immediate effect; and does not require any disclosure of information to the public. The key disadvantage of a trade secret is its vulnerability to reverse engineering.

Criticism

Ethical Problems

One prominent ethical problem is related to patents on medicine, particularly when people may die without the patented medicine and costs are very high. Sick people are very vulnerable and extortion commonplace because they will any price necessary to stay alive. This is particularly true of publicly-traded stock companies whose goal is profit for investors, and strategic profit rather than conscience determines the price. In the case of insulin, or HIV-AIDS treatments, the government may intervene to lower prices. However, in the case of the COVID-19 vaccines or treatments where a government pays the bill, manufacturers may extort governments or collude with politicians to receive an inflated price and hide the long-term costs to citizens.

A second problem is a company buying patent rights from the inventor with the intention of raising the price. While the inventor may receive an acceptable personal windfall, the trading of patents does not serve society, which was the original purpose of the patent. The patent buyer neither invented the product nor served the public interest, but profits from buying someone else's invention at the public expense. This is an example of the abuse or hijacking of the patent system.

A third ethical problem is the patenting of a product that received development funding from the government. In this case, taxpayers are paying part of the cost of the research and, arguably the developer is working for the government. This would be similar to a corporation receiving a patent invented by an employee who was paid to do the research. Government-developed products should be in the public domain because they are developed with public funds. It is unethical for individuals or corporations to profit at public expense.

A fourth ethical problem is related to government agencies that approve the use of patented products that carry a potential risk of harm to the public. This could be medicines, airplanes, pesticides, or other toxic materials. Frequently, officials in the regulatory agencies collude with producers to bias approval of new patented items, later to be found unsafe.

Policy Debates

Legal scholars, economists, activists, policymakers, industries, and trade organizations have held differing views on patents and engaged in contentious debates on the subject. Critical perspectives emerged in the nineteenth century that were especially based on the principles of free trade.^:262–263 Contemporary criticisms have echoed those arguments, claiming that patents block innovation and waste resources (e.g. with patent-related overheads) that could otherwise be used productively to improve technology. These and other research findings that patents decreased innovation because of the following mechanisms:

• Low quality, already known or obvious patents hamper innovation and commercialization.
• Blocking the use of fundamental knowledge with patents creates a "tragedy of the anticommons, where future innovations can not take place outside of a single firm in an entire field".
• Patents weaken the public domain and innovation that comes from it.
• Patent thickets, or "an overlapping set of patent rights," in particular slow innovation.
• Broad patents prevent companies from commercializing products and hurt innovation. In the worst case, such broad patents are held by non-practicing entities (patent trolls), which do not contribute to innovation. Enforcement by patent trolls of poor quality patents has led to criticism of the patent office as well as the system itself. For example, in 2011, United States business entities incurred $29 billion in direct costs because of patent trolls. Lawsuits brought by "patent assertion companies" made up 61% of all patent cases in 2012, according to the Santa Clara University School of Law.
• Patents apply a "one size fits all" model to industries with differing needs, that is especially unproductive for the software industry.
• Rent-seeking by owners of pharmaceutical patents have also been a particular focus of criticism, as the high prices they enable puts life-saving drugs out of reach of many people.

Anti-patent initiatives

Debates over the usefulness of patents for their primary objective are part of a larger discourse on intellectual property protection, which also reflects differing perspectives on copyright.

Boldrin and Levine conclude "Our preferred policy solution is to abolish patents entirely and to find other legislative instruments, less open to lobbying and rent seeking, to foster innovation when there is clear evidence that laissez-faire undersupplies it." Abolishing patents may be politically challenging in some countries, however, as they are resisted by those who argue that inventors and innovators need patents to recoup the costs associated with research, inventing, and commercializing; this reasoning is weakened if the new technologies decrease these costs. A 2016 paper argued for substantial weakening of patents because current technologies (e.g. 3D printing, cloud computing, synthetic biology, etc.) have reduced the cost of innovation.

• The Patent Busting Project is an Electronic Frontier Foundation (EFF) initiative challenging patents that the organization claims are illegitimate and suppress innovation or limit online expression. The initiative launched in 2004 and involves two phases: documenting the damage caused by these patents, and submitting challenges to the United States Patent and Trademark Office (USPTO).
• Patent critic, Joseph Stiglitz has proposed Prizes as an alternative to patents in order to further advance solutions to global problems such as AIDS.
• In 2012, Stack Exchange launched Ask Patents, a forum for crowdsourcing prior art to invalidate patents.
• Several authors have argued for developing defensive prior art to prevent patenting based on obviousness using lists or algorithms. For example, a Professor of Law at the University of North Carolina School of Law, has demonstrated a method to protect DNA research, which could apply to other technology. Chin wrote an algorithm to generate 11 million "obvious" nucleotide sequences to count as prior art and his algorithmic approach has already proven effective at anticipating prior art against oligonucleotide composition claims filed since his publication of the list and has been cited by the U.S. patent office a number of times. More recently, Joshua Pearce developed an open-source algorithm for identifying prior art for 3D printing materials to make such materials obvious by patent standards. As the 3-D printing community is already grappling with legal issues, this development was hotly debated in the technical press. Chin made the same algorithm-based obvious argument in DNA probes.
• Google and other technology companies founded the LOT Network in 2014 to combat patent assertion entities by cross-licensing patents, thereby preventing legal action by such entities.

Patent Reform Concepts

A midway position between current patent systems and anti-patent proposals is patent reform. The purposes of patent reform should be twofold: 1. Eliminate unethical use of patents and price gouging. And reduce corruption and abuse of patents. This reduces public harm. 2. Continue to provide incentives to invent. This increases public good.

There are reforms that could be put in place, but both current patent holders and corrupted politicians will likely resist them. 1. Require mandatory subrights sales to other producers. This will limit price-gouging while still providing a windfall to the patent holder. A common fee of 10% royalties for subrights would only raise the market price of the product by 10%, essentially giving the patent holder a 20% windfall on every product sold by another producer. 2. Require the government to buy patents on critical products like medicines for a significant price. This would put the product in the public domain while giving the patent holder a windfall. Poor people would not have to pay unaffordable prices to stay alive. Perhaps the government could pay by triple or quadruple the development cost to the inventor. 3. Prohibit the resale of patents. This would not prevent price gouging, but it would reduce corruption. 4. Prohibit the ownership of patents by corporations whose stocks are publicly-traded on a stock exchange. This would greatly reduce corruption and somewhat reduce price gouging. 5. Early retirements of patents on products not brought to market—say 5-7 years. This would inhibit patenting a product for purposes preventing its development, in order to continue to exploit a less desirable product.

Conclusion

Patents can generally only be enforced through civil lawsuits (for example, for a US patent, by an action for patent infringement in a United States federal court), although some territories (such as France and Austria) have criminal penalties for wanton infringement. Typically, the patent owner will seek monetary compensation for past infringement, and will seek an injunction prohibiting the defendant from engaging in future acts of infringement. In order to prove infringement, the patent owner must establish that the accused infringer practices all of the requirements of at least one of the claims of the patent (noting that in many jurisdictions the scope of the patent may not be limited to what is literally stated in the claims, for example due to the "doctrine of equivalents").

An important limitation on the ability of a patent owner to successfully assert his or her patent in civil litigation is the accused infringer's right to challenge the validity of that patent. Civil courts hearing patent cases can and often do declare patents invalid. The grounds on which a patent can be found invalid are set out in the relevant patent legislation and vary between countries. Often, the grounds are a sub-set of the requirements for patentability in the relevant country.

Patents in force in 2000

The vast majority of patent rights, however, are not determined through litigation, but are resolved privately through patent licensing. Patent licensing agreements are effectively contracts in which the patent owner (the licensor) agrees not to sue the licensee for infringement of the licensor's patent rights, usually in return for a royalty or other payment. It is not uncommon for companies engaged in complex technical fields to enter into dozens of license agreements associated with the production of a single product. Moreover, it is equally common for competitors in such fields to license patents to each other under cross-licensing agreements in order to gain access to each other's patents. A cross-license agreement could be highly desirable to the mousetrap developers discussed above, for example, because it would permit both parties to profit off each other's inventions.

There are many incentives embodied in the patent system: the incentive to invent in the first place; the incentive to disclose the invention once made; the incentive to invest the sums necessary to experiment, to produce, and finally get the invention on the market; and the incentive to design around and improve upon earlier patents.

• First, patents provide incentives for economically efficient research and development (R&D). Many large modern corporations have annual R&D budgets of hundreds of millions or even billions of dollars. Without patents, R&D spending would be significantly less or eliminated altogether, limiting the possibility of technological advances or breakthroughs. Corporations would be much more conservative about the R&D investments they made, as third parties would be free to exploit any developments. This second justification is closely related to the basic idea underlying traditional property rights: why build a house if another person could freely occupy it?

• Second, in accordance with the original definition of the term "patent," patents facilitate and encourage disclosure of innovations into the public domain for the common good. If inventors did not have the legal protection of patents, in many cases, they would prefer or tend to keep their inventions secret. Awarding patents generally makes the details of new technology publicly available, for exploitation by anyone after the patent expires, or for further improvement by other inventors. Furthermore, when a patent's term has expired, the public record ensures that the patentee's idea is not lost to humanity.

• Third, in many industries (especially those with high fixed costs and either low marginal costs or low reverse engineering costs — computer processors, software, and pharmaceuticals being prototypical examples), once an invention exists, the cost of commercialization (testing, tooling up a factory, developing a market, etc.) is far more than the initial conception cost. (For example, the internal "rule of thumb" at several computer companies in the 1980s was that post-R&D costs were 7-to-1). Unless there is some way to prevent copies from competing at the marginal cost of production, companies will not make that productization investment.

• Fourth, patent rights create an incentive for companies to develop workarounds to patented inventions, thereby creating improved or alternative technologies that might not otherwise have been developed.

• Fifth, patent rights also create many negative incentives as listed in the criticisms. These include price gouging, preventing inventions from reaching the market, and many forms of corruption.

Most patent systems are in need of reform if they are to best serve both incentives for invention and the public interest. Such possible reforms include mandatory subrights sales, government purchases of patents related to critical needs, and the retirement of patents on products not brought to market in a reasonable period of time.

Notes

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