Recoupment Patent

Abstract

The patent system aims to encourage innovation while keeping its own administrative costs to a minimum. Considering the centrality of innovation to 21st century economic activity, patent law is widely viewed as a crucial element of our legal system. And yet by any standard our patent system is broken. At present it encourages the filing of a plethora of low-quality patents that have no true innovative value, is plagued by opportunistic patent trolls, and produces endless amounts of costly litigation.

This article demonstrates how these phenomena are due to central design flaws in the current system. First, although the patent system is designed to encourage investment in innovation, it lacks a mechanism for directly examining an inventor’s level of investment. This major flaw systematically ignores the single most important factor the patent system seeks to promote. Second, the current system offers one-size-fits-all protection, granting the same 20-year monopoly to any and all inventions. This inflexible legal standard is outdated and inappropriate, given the wide variety of inventions it addresses and the immense differences between them.

The core of this article proposes structural reform designed to remedy these fundamental flaws. First, we suggest that the patent system must explicitly consider the investment made in each specific invention when deciding what level of legal protection each invention merits. Second, we advocate departure from the current one-size-fits-all model in favor of a more tailored approach, offering different periods of protection for different inventions. These two elements would produce a system in which inventions are granted protection for a duration that depends on the level of investment each invention requires. We call this model a “recoupment patent” and highlight its advantages over the current system.

Under the new model, filing for patent protection will require documentation of investment in the invention, which will serve as the basis for determining duration of protection. Protection will expire once the investment is recouped and a fixed percentage of profit is earned. Filing and renewal fees will also be calculated based on documented investment. Additionally, investment will serve as a basis for calculating royalties (or damages in subsequent litigation). In either case, the patentee bears the burden of demonstrating the level of investment in the invention. This regime is more accurately tailored to incentivize innovation while avoiding the excessive protection that results from the current one-size-fits-all system. This new regime also incorporates mechanisms to prevent inventors from misstating their investment. Throughout the paper, we address the challenges created by our proposal and highlight its advantages over the existing system and over other reform proposals. We also discuss extensions and possible refinements to the basic conception outlined above.

Keywords: patent trolls, patent thicket, law reform, innovation, patent, intellectual property

JEL Classification: K11, K20