Patent Law in the Digital Age

Today, on the twelve-hour drive home for reading days, I stumbled across an interesting NPR segment that explored many of the same issues with current patent law that we talked about last week. The interview with Charles Duhigg referred to his recent NYT article (which can be found here). Duhigg’s article assesses the degree to which current patent law is outdated.

In many ways, current law is unable to keep up with the demands of the digital marketplace. Over recent years, companies have been able to secure patents for increasingly broad concepts. In the agrarian and manufacturing stages of American economic development, the job of issuing patents was simpler as it applied to physical products. Today’s patents, however, are provided for less tangible inventions, such as the article’s example: a method of calculating online prices. These patents can be provided for business methods rather than functioning products. That is, companies can often secure patents for ideas that they have yet to execute.

Similar to Stiglitz, Duhigg consistently focuses on the interests of the consumer and market efficiency. When patents promote innovation, they succeed. When they stifle innovation (even for the purpose of rewarding inventors), they fail. Because digital technology develops at such a rapid pace, Duhigg and others make a compelling argument that patents in this industry could be shorter than in others. Of course, they should still exist in order to provide incentives for innovation to occur in the first place; however, 3- or 5-year patents could be sufficient depending on the product in question.

Further, the patent office should adjust its procedures in order to only issue patents for specific and fully functioning innovations. The article points out that 70% of patent applications are ultimately approved (including those that undergo adjustments). This is an alarmingly high number. Issuance of patents should be executed with caution, because each patent issued is a prohibition on a potential competitor to the “inventor.” And, if no product was truly “invented” then the patent office is unnecessarily and unjustly providing the patent applicant with a monopoly. Consumers pay the price for this lack of competition.

Of course, patents are necessary. They provide incentives for innovation and, even more importantly, for sharing the benefits of that innovation with consumers through the market; however, not all new business ideas require patents. When patents impede innovation and harm consumers, they fail to accomplish their intended task.

Charles Duhigg highlights many interesting and important dimensions of the patent debate as it stands. I recommend reading his article for a more in-depth look at the issue, complete with interesting examples and even patent legalese.