A question of balance

Because the patent system may do substantial harm as well as possible good, balance between the innovation inducement effect and the competition reduction effect has always been important. It has less often been recognised that the patent system attracts the kind of ‘gaming’ behaviour that has been rife in tax policy (Section 1). The current review of patentable subject matter provides the opportunity to return the patent system to the narrow realm in which it belongs—where there is likely to be a benefit to the public. This would be consistent with current empirical evidence—that patents are important in inducing innovation only where technology is highly codified or where the initial investment is very large compared to market size (Section 2). Establishing the boundaries of actual patent policy is challenging, but it can be assumed that the government’s intent is that the overall system not be welfare-reducing. This means that there must be a reasonable consideration in exchange for the monopoly—patent monopolies should not be lightly granted. There has never been any government decision to extend the boundaries of patentable subject matter to new fields such as software, discoveries or methods of medical treatment. These major competition and innovation policy decisions have been made within the patent administration system (Section 3). There is clearly a major gap between patent policy and the actual outcomes as delivered by the patent administration system. These gaps are explored in Section 4, where a series of legal decisions and legal doctrines are considered from an economic viewpoint. The gulf between policy and practice suggests the need for: serious attention to ‘gaming’ behaviour, including ‘anti-avoidance’ provisions and penalties for undermining the patent system; a need to redress the way in which the patent playing field is so substantially sloped in favour of the patent applicant that many uninventive ‘inventions’ are being granted patents: a need for a multi-faceted team to address the gaps between patent policy and practice to design a robust system that will operate to enhance national economic well-being and be resistant to ‘gaming’ behaviour. Besides addressing ‘gaming’ behaviour and the bias against the public interest, this could include: substantially increasing the inventiveness threshold; requiring claims clarity from the point of application/grant; and compensating losers, possibly by limiting the monopoly grant to the prevention of copying; a need for regular evaluation of the patent system overall, and of legal decisions that impact on patent policy in particular; and a need for the collection of proper economic data on the impact of the patent system, including: provision of advice to the patent office whenever a monopoly right is exercised; collection of data through the National Innovation Survey to identify the impact of patents on innocent innovators, and estimate the proportion of innovations induced by the patent system