Is there an optimal patent length?

Abstract: In today’s society innovation is increasingly important for a developed, as well as a developing, country and it is a significant contributor to economic growth and the evolution of society. The accounted value of companies increasingly consists of immaterial property and our access to existing knowledge is ever greater and ever easier. Since ideas and innovations are of such great importance to markets and their actors, it is equally important for them to be able to protect and profit from their innovations. The lack of the incentive to improve upon existing ideas may result in a considerable deadweight loss for society. Therefore man has created the concept of intellectual property to create and reinforce the incentive to innovate. However, as with all things, a balance between awarding and hindering progress must be achieved. In the case of patents they award exclusivity of the use of innovations and grants the innovator the possibility to sell, license or use that innovation as he wishes within certain frameworks, one of them being within a certain time frame. This way the owner of a patent may potentially benefit from his innovation. Conversely, patents hinder others from using an idea and further build and develop on that idea during the stipulated time of exclusivity, which clearly affects the rate of innovation negatively within a society. This is why it is important to find the exact length of a patent, where the positive aspects outweigh the negative ones. The trade-off between awarding exclusivity and promoting innovation through patents is regulated in different areas. For instance, the use of patents is limited by competition regulations whereas patent laws regulate the width and the necessary innovative step. This paper focuses on yet another issue in this field, the time limitation of a patent. So how long should a patent be to induce innovation? Too short and there might not be enough incentive to innovate. Too long and the innovation rate in society will be reduced since most innovation is incremental and thrives through the ability to utilize and improve on earlier innovations. Patents are an old concept on which markets have relied for a long time. In addition, patent systems and lengths have been rather similar across the industrialized world. Since patent systems have been so alike through the years, also across different markets, one can hardly compare them in order to improve them. Even so, many researchers have tried to examine and present a theory covering the issue of an optimal patent length, but the complexity of the discussion is too great and the unknown factors are too many to be solved in a satisfactory manner by a single theory. No single innovation theory seems to be able to answer the multiple considerations a wide variety of products, processes, and markets demand. The famous economist Joseph A. Schumpeter proposes a system based not on inventors but on investors in innovation. I believe that Schumpeter’s theory is a good starting point in the quest of finding an optimal patent length. A patent should be precisely long enough to induce investments in innovation. However, it still doesn’t solve the problem with different needs and wants for different industries and different investors. Every industry, from napkins to pharmaceuticals, are different from one another which complicates and maybe even renders it impossible to find a single optimal patent length. In my opinion, there simply isn’t a one-size-fits-all solution to the problem as suggested in article 63 EPC. However, there is no simple way of dividing the industries into several different ‘patent groups’ either. On what basis should this partition be made? To be very specific is extremely difficult since not only every industry is different but every investor and every innovation is different. To create a vast system that considers each of these situations is impractical and most likely impossible. I suggest, despite all of this, that such a partition into different ‘patent groups’ should be made. To determine exactly which innovation that should adhere to what ‘patent group’ requires further investigations but it is clear to me that vastly different industries with equally different markets shouldn’t coexist under the same regulations. I propose a partition based on industries and a patent length that makes it potentially interesting to invest in innovation within that industry; basically award investors the opportunity to regain their investments and make a reasonable profit. Clearly, this isn’t an easy task. There cannot be too many ‘patent groups’ if the system shall remain practical. Even if it is only the long life-cycle pharmaceutical and biotech industries that get singled out into a different group it would still confer an improvement upon society, as any increase in innovation is commendable. Once the ‘patent groups’ problem is resolved, further investigation is required in order to determine which length the different groups should be awarded. Today’s’ research in the matter is inconclusive and there is very little real experience to draw from. Nonetheless, in my view there is enough evidence supporting a reduction in the length of patents in short life cycle industries. Boldrin and Levine show in their paper that due to the increase in the size of the markets, thanks to globalization and free trade agreements, the time it takes to recover investments in successful innovations has decreased. Society as a whole moves much faster and the pace of exchange in information makes twenty years seem like a much longer time than it used to, even than it did just sixteen years ago when the TRIPS Agreement was adopted. However, this is not the case for all industries, for instance in the pharmaceutical industry where the development of new products is increasingly complex. This is why I suggest that there simply isn’t one single optimal patent length. The system would be more just and more efficient if it adhered to this reality.