Un-unified Economic Theories of Patents - The Not-Quite-Holy Grail
In a very rough sort of way, the search for a unifying economic theory of patents may be seen as paralleling the search for a unifying scientific theory of the universe. As put by physicist Steven Hawking in his best selling book, A Brief History of Time: “The eventual goal of science is to provide a single theory that describes the whole universe.” Nobel laureate, Leon Lederman, in his recent book, The God Particle, declares: “Unification, the search for a simple and all-encompassing theory, is the Holy Grail.” At present scientists must describe the universe in terms of two very basic partial theories -- general relativity and quantum mechanics; unfortunately, these partial theories are known to be inconsistent with one another. The general theory of relativity may be seen as describing the universe at the “macro” level, involving the force of gravity with respect to relatively large structures and distances. Quantum mechanics theory may be seen as describing the universe at the “micro” level of extremely small structures and distances.
Analogously, various theories have been developed in an attempt to describe the patent system. These theories have usually been at the macro level to describe the overall patent system as providing a net economic benefit or loss to society. More recently, theories have been advanced for describing the patent system at a micro level in terms of explaining the outcome of actual patent validity decisions.
The physics analogy may be carried further into classical and modern periods. The classical period in physics (in particular, Newtonian mechanics) ended with quantum mechanics. The classical theories of the patent system would include natural law/justice based theories (principally the “reward” theory) and pragmatic or economics based theories (principally the “patent-induced” theory). The modern era in patent economic theory may be seen as beginning in 1977 with Kitch's publication of an article describing the “prospect” theory of the patent system -- analogizing from the U.S. mineral claims system. This theory has been highly controversial and criticized by various commentators, including those supporting classical theories. In 1990, Merges and Nelson presented a new theory of the patent system, designated the “race-to-invent” theory, based upon empirical studies that society would benefit from granting patents with a relatively narrow scope of protection so as to permit competition in improvement inventions (innovations) to enhance the rapidity of development. The most recent theory advanced by Grady and Alexander is a micro theory (i.e., predictive of individual patent cases) based upon “rent dissipation” theory. The essence of this theory is that patents should minimize rent dissipation at the invention (conception) and innovation (improvement) stages. Accordingly, the theory may be used to predict the outcome of individual patent cases, with a particular patent being enforced if overall rent dissipation is avoided.
The analogy between physics and patent economic theory, however, breaks down at the most fundamental level. Both classical and quantum mechanics are scientifically verifiable. Newton's laws still work quite nicely, provided one does not travel too fast, as does Einstein's general theory of relativity, provided one does not stray into the subatomic universe. Unfortunately, neither classical nor modern patent economic theory is verifiable. At the present state of knowledge, macro theories must be based on assumptions concerning societal outcomes. There is no general agreement that any of the macro theories of the overall patent system can rigorously demonstrate that a patent system provides a net societal benefit. The extrapolation from macro to micro theory may be especially unrewarding when applied in the unmeasurable universe of actual patent cases. The objective difficulty of evaluating factual situations and doctrinal applications in actual patent cases may be analogized to the “uncertainty principle” in physics. Broadly stated, the uncertainty principle recognizes that, because of the physical nature of light and particles, it is impossible to measure speed and position with exacting certainty; thus quantum mechanics predicts probability of outcome rather than actual outcome. One would hope for similar qualifications in any predictive economic theory of outcome in actual patent cases. Nonetheless, if any of the economic theories is capable of predicting the outcome of individual cases in terms of efficiency, it would seem to follow that the overall system would also result in a net benefit. Could this then be the “Holy Grail” of patent economic theory? This Article concludes that none of the theories is consistently predictive of case outcomes, in particular the rent dissipation theory, which is the only theory that claims predictability in actual cases. Thus, the overall conclusion is that currently there is no unifying theory that describes the overall patent system and the outcome of individual cases.
To reach this conclusion, a framework for evaluating the various theories is developed in Part II of the Article, the various classical and modern theories are briefly discussed and critiqued in Part III A and B, the characteristic outcomes predicted by the various theories are identified in Part III C, and the theories are applied to various actual cases to test their respective predictive powers in Part IV.
The conclusion that no unifying theory has yet been presented is not intended to diminish the quest for theories, economic and otherwise, for explaining the patent system at both the macro and micro levels; nonetheless, any unifying theory of patents is apt to prove even more elusive than the unifying theory in science.
Samuel Oddi, Un-unified Economic Theories of Patents - The Not-Quite-Holy Grail, 71 Notre Dame Law Review 267 (1996).