Constitutionalizing Patents: From Venice to Philadelphia

Abstract:     
Patent law today is a complex institution in most developed economies and the appropriate structure for patent law is hotly debated around the world. Despite their differences, one crucial feature is shared by the diverse patent systems of the industrialized world even before the recent trend toward harmonization: modern patent regimes include self-imposed restrictions of executive and legislative discretion, which we refer to as "constitutionalized" systems. Given the lucrative nature of patent monopolies, the long history of granting patents as a form of patronage, and the aggressive pursuit of patronage in most societies, the choice to confine patents within a legal framework that minimized the potential for gain by current office holders requires explanation. Why choose to constitutionalize patents?

This paper answers these questions by examining three salient constitutionalizng events through the lens of public choice theory. First, the ground breaking Venetian statute of 1474, the first modern patent system; second, the British experience with patents that led to the 1624 Statute of Monopolies, one of the key foundations of the U.S. patent system; and lastly, the American Founders' adoption of Article I, Section 8, Clause 8 of the Constitution, which grants the power to, and sets forth the manner in which, the national government can issue patents. We argue that creating constitutional patent law institutions offered the opportunity to both increase the durability of the bargain between the state and the inventor and, in some cases, to limit the grant of patents to those most likely to increase the general welfare.

Based on the historical analysis, we derive three desirable features for patent law institutions:

(1) strong constraints on the type of patents that can be issued, limiting them to areas in which there is evidence that the costs of the limits to competition imposed are justified by the benefits produced by the incentives created;

(2) an independent institution capable of reviewing the grant of a patent in a timely and final manner, to ensure the constitutional bargain is kept; and

(3) patents that provide their owners with a sense of security in the validity and scope of their property right, to maximize the value of the bargaining chip offered to inventors.

Our analysis thus offers lessons for countries considering new patent law institutions or modifying existing ones.

Keywords: Intellectual Property, Patents, Constitutionalized System, Public Choice

JEL Classifications: H11, K11, K40, O31, O34

Working Paper Series