Often in patent policy, I’m struck by the unwarranted assumption that the primary or only justification for patents is their value in incenting innovating activity. Perhaps, various policy commentators want to communicate with the widest audience, and thus intentionally over-simplify the issues. Maybe talking about incentives is a convenient way to compare how different software development models view patents. In either case, I believe that background on the basic theories of patents is warranted.

A foundational paper on patents is by Roberto Mazzoleni and Richard Nelson, in which they formulate the major patent theories, their derivatives and how the theories relate. Economic Theories about the Benefits and Costs of Patents, Journal of Economic Issues 32, 4: 1031-1052 (1998). Mazzoleni and Nelson argue that justifications for and arguments against patents are neither settled empirically nor theoretically. The question for scholars, and policy commentators, is not what theory is right, but where different patent theories apply.

1. Incentive Theory: patents provide motivation for useful invention...
2. Disclosure, Invention-Dissemination Theory: Patents... facilitate wide knowledge about and use of inventions...
3. Commercialization Theory: Patents on inventions induce the needed investments to develop and commercialize them...
4. Prospect Theory: Patents enable the orderly exploration of broad prospects...

When reading the paper, I would like readers to note that I, and perhaps my colleagues at PFF, view the theories with some qualifications.

First, in the Incentive Theory, Mazzolini and Nelson observe some may argue patents are necessary for innovation. I believe patents are not necessary for innovation to proceed, but may stir greater innovation than that which would occur in their absence.

Second, in the Disclosure Theory, Mazzolini and Nelson discussion how patents may extend the use of inventions. Typically, the disclosure theory is taken as signifying some kind of unveiling or uncovering of the details for an invention. Mazzolini and Nelson however, imply that disclosure can entail greater distribution and societal access to inventions (diffusion) as the result of patent licensing.

Third, the Commercialization Theory discussion by Mazzolini and Nelson is pretty much on point. The theory, which arguably underlies the Bayh-Dole Act, is similar in some aspects to the Incentive Theory, but it emphasizes how small firms and independent inventors may hand-off an invention protected by a patent, while the Incentive Theory focuses on how the prospect of doing so will support inventors in their decision to innovate in the first place.

One aspect of the commercialization theory that Mazzolini and Nelson do not discuss is how patents may bridge collaboration between different sectors, and entities of otherwise different bargaining power; arguments pushed forward by scholars such as F. Scott Kieff, Robert Merges and Ronald Mann.

Fourth, the discussion of Prospect Theory is on-mark. Mazzolini and Nelson talk about assumptions on efficient licensing negotiations, and whether central coordination of licensing by patentees will be most efficient means of inducing further-on innovation. They seem dubious that the theory would be useful in industries prominently marked by cumulative innovation; however, I believe that they would find it applicable where a specific technological space in a cumulative industry progresses by groundbreaking-pioneering innovation.

Perhaps the most important insight offered in this paper is that the non-settled economic bases for patents is not a per se "indication of intellectual troubles,” but rather an indication that further work needs to be done in the area. I would suggest an approach to continue ironing out the patent theories: base it on innovation and policy economics, not ideological nor moral arguments.

posted by Noel Le @ 7:30 AM | Patents

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