Costs Versus Benefits of The System
Patent system is designed to encourage innovation. This is because patents, by conferring rights to the owner to exclude competitors from the market, offer the incentive for people to study new technology. In some field, it is also argued that the monopoly of the patent in the market will make sure the owner recover the huge expenses invested in the research and development phase.
While the patent system is designed to encourage innovation, the way it works can sometimes discourage innovation. First of all, because the cost of obtaining a patent is relatively low and the PTO’s issuance usually depend on looking at the “prior arts”, there are huge incentives for people to file patent applications early without themselves having any idea about the commercial significance of the patent in the application. As a result, many patent applications simply work as lottery tickets. They would apply repeatedly or file a series of applications on closely related technologies, in the hope that this would cover the technology that is widely adopted in the market in the future. This patent ticket lottery can have negative influence on other firms in the market. In some cases, firms could be investing in alternative technologies, only to find others registered the technologies as a part of the continuation patent practice before.
In addition, despite that USPTO tried its best to discriminate the validity and scope of a patent application, sometimes it will still issue a patent that should not be issued. The system corrects the mistake by maintaining the rights to nullify inappropriately issued patents. However, only very small fraction of the disputes ever went to court because of high litigation cost. A research paper by Mark Lemley and Carl Shapiro in 2005 showed that among 200,000 patents that are issued every year, only 1.5 percent of patents are ever litigated, and only 0.1 percent of patents are ever litigated to trial. This means the majority of patent disputes are either overlooked or settled privately. While private settlement is a good way to leverage the commercial interest between the firms, the public won’t benefit anything from it because there is no open discussion that would help clarify the scope of rights for that particular patent or no chances either in invalidating the patents so that it spreads the knowledge into the public domain.
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