Academic journal article Harvard Journal of Law & Technology

Patents, Prizes, and Property

Academic journal article Harvard Journal of Law & Technology

Patents, Prizes, and Property

Article excerpt

TABLE OF CONTENTS    I. INTRODUCTION  II. STATIC AND DYNAMIC INTERVENTIONS IN INTELLECTUAL      PROPERTY      A. The Static-Dynamic Divide in the Patent-Prizes Debate      B. The Power of Property Rules in Patent Law III. FROM REGULATION TO "PROPERTY" IN PATENT LAW  IV. CONCLUSION 

I. INTRODUCTION

The standard conception of a patent is that of a property right that allows its holder to exclude potential competitors in order for the holder to price its patented goods above the competitive rate so as to generate above-market profits that ostensibly induce inventive activity. (1) On this view, society countenances the deadweight losses of exclusionary rights in return for the fruits of innovation. (2) In contrast to this view of patents is the traditional conception of prizes--namely, rewards provided by the State or a third party in return for a suitably completed invention. (3) Unlike patents, once the inventor is paid via a prize, the invention is placed into the public domain and, on the traditional view, is available for all to consume absent deadweight losses. (4) In simpler terms, patents sound in private law and the conceptions of tort, contract, and property. (5) Prizes sound in public law and the conceptions of regulation and state subsidy. (6)

Several scholars have recently cast considerable doubt on the starkness of this dichotomy between patents and prizes. (7) For example, in Beyond the Patents-Prizes Debate, Professors Daniel Hemel and Lisa Ouellette reconceive patents and prizes as complementary components of a larger selection of incentives for innovation, such as research grants and tax credits. (8) In so doing, they provide a variety of examples of how prizes could be structured so as to perform the major functions of patents. (9) For instance, noting the oft-stated view of economists that patents are inherently superior to prizes because they draw only on users of the patented invention, Hemel and Ouellette explain that government funding for a prize may derive from a sales tax imposed on consumers of a particular innovative product--mimicking the "user-pays" feature of a patent system. (10) Specifically, such a sales tax would raise the price on an otherwise non-patented product exactly to the level necessary to incentivize the innovator to produce the product. (11) If we assume the patent system is precisely calibrated--so that it awards neither too little nor too much to the innovator--then with a sales tax-driven prize, those consumers who could not purchase the product under the supra-competitive prices of the patent system are precisely the same consumers priced-out of the ostensibly "competitive" market under a prize system. (12)

In Intellectual Property versus Prizes: Reframing the Debate, (13) Professor Benjamin Roin further explores the insightful analysis of Hemel and Ouellette. (14) Specifically, he contends that the State may implement a host of measures alongside patents--such as subsidies, tax credits, and price controls--in order to effectively reduce the consumer deadweight losses imposed by patents. (15) At the same time, like Hemel and Ouellette, he recognizes that because prizes--at least those offered by the State--must be funded by the taxpayers, they too impose deadweight losses. (16) Moreover, when prizes are calculated based on sales figures of a completed invention, for a variety of complex reasons--particularly a seller's incentive to price below marginal cost so as to increase sales--further deadweight losses may result. (17)

For these and other reasons, Roin persuasively concludes that the seemingly stark differences between patents and prizes may sometimes evaporate in practice. (Hemel and Ouellette implicitly make a similar point.) I term this the "patent-prize fungibility thesis." (18) In this regard, as I explain below, the institutional choice between patents and prizes may ultimately be less one of deadweight losses than of minimizing transaction and error costs in implementation. …

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