The Patent System as the Regulation of the Exchange of Rights over Inventions

Chris Dent (Murdoch University), “The Patent System as the Regulation of the Exchange of Rights over Inventions”

It is not controversial to suggest that the many, if not most, of the settings of the current patent system were put in place in the nineteenth century. Recent research has shown that when the nineteenth-century English reforms are viewed in light of the contemporary works of the classical economists, the underlying purpose of the system was to facilitate the trade in inventions – rather than in the production of new inventions. This paper will provide an overview of the arguments in that article before then considering the twentieth-century changes to the patent system to see if they have impacted on that identified purpose. First, however, it should be noted that this argument is founded on a distinction between the benefits a firm would seek from a patent and the benefits that society would gain from having a patent system.

When the nineteenth-century patent cases are considered in detail, a number of features can be highlighted that accord with the writings of the political economists. First, the law saw patentees, or speculators as they were sometimes referred to as, as financially self-interested individuals. This is not surprising, but it is worth noting. Second, the system, particularly after the reforms of the middle of the century, operated to give value to the patents themselves; with value being a key concern of the classical economists. Processes were in place – mostly around the specifications – that showed the novelty of the invention behind the patent and the opposition system was instituted that allowed others to challenge patent applications (with a patent that survived an opposition procedure being more valuable than one that hadn’t been challenged). Further, many of the mid-century reforms can be seen to have been aimed at the bureaucratisation of the allocation of value. Finally, these bureaucratic processes are best understood as facilitating the exchange of patents (with exchange being another key interest of classical economists). The Registers of Patents and Patentees provided information for, and reduced the risks associated with, the purchasing and licensing of patents; the introduction of the provisional specification allowed for pre-registration sales pitches and even the Paris Convention facilitated cross-border trade in patents and the standardisation of value of patents across the different countries.

The question, then, is whether the reforms since the turn of the twentieth century have impacted on the system’s underlying purpose. This paper highlights five significant changes that may have had such an impact. Three of these are “legal” and the other two have a broader background. The first of the legal changes was the introduction of professional examiners that examined patent applications for novelty (in the nineteenth-century, they only examined for matters of form). The second legal change was the introduction of the test for “inventive step” in the middle of the century. This test was in addition to the test for novelty that was instituted in the nineteenth century. Both of these changes can be seen to have enhanced the value of the granted patents. A properly examined patent would be more valuable than a patent that had not been examined; and a patent that had passed both tests would be seen as more valuable than one that covered an invention that was only seen to be novel.

The third legal change is the expansion of the international system with the ratification of the EPC and the TRIPS Agreement. While work still needs to be done on the comparison of the effect of these agreements to the effect of the Paris Convention, it is likely that an Agreement that builds on the nineteenth-century Convention (as the TRIPS Agreement expressly did) would not change the underlying understanding of the system. And again, the agreements standardised the granting (and therefore valuing) and protection of patents across borders; thereby facilitating the exchange of patents.

The next change to be discussed is not strictly legal. It focuses on the shift in the literature from considering patents as a reward for particular behaviours (the nineteenth-century approach) to considering patents as incentives for similar behaviours. One perspective on the difference between “reward” and “incentive” focuses on who assumes the risks associated with seeking a patent. With the former, it is the state, as they provide a reward; with the latter, it is the patentee. This shift accords with the change from classical to neo-classical economics, but in and of itself, it does not appear to impact on the underlying purpose of the system.

The final change is even less directly connected to the patent system. That change is the society-wide growth in concerns around the “public interest”. The nineteenth-century courts cared little for the public interest – besides a number of almost patronising comments in some of the cases – whereas, now, the public interest is more central to debates around the system. This may, in some ways, be the more radical shift in the patent system as it means that the system has to respond to many more interest groups than the nineteenth-century system had to. Other recent research into the public submissions to an inquiry into the granting of pharmaceutical patents found that there were four different articulations of the public interest in that space. Those articulations were: (1) the better health of the population (possible through greater access to better drugs); (2) more innovation generally (some submissions referred to a domestic pharmaceutical research industry); (3) profitable businesses – either Big Pharma or smaller pharmaceutical companies – for the health of the economy; and (4) effective legal and regulatory systems that meet the needs of the public. While one of them does relate to the standard “incentivisation” rationale, two of them – profitable businesses and efficient regulation – accord with the idea that the system is, in fact, aimed at the exchange of patents. In short, none of the changes identified here appear to impact on the underlying purpose of the patent system as identified from the nineteenth-century cases.

There are three caveats to this paper. First, this work is best identified as exploratory in nature. As such, there is no engagement with how this perception of the purpose of the patent system could, or should, change how the system operates now. Second, the focus of this research is the patent system in England; its application to the European systems has not been explored. Finally, it only covers patents. Patents share some features with copyright and trademarks; however, as there is no requirement for registration for copyright, the systemic allocation of value is different. With respect to trademarks, the value is attached, to a significant extent, to something outside the system (the firm’s reputation) – so the allocation of value is different – and trademarks are not as exchangeable as patents (again due to the connection with reputation). Further work may be done to explore each of these caveats.