The Value of Accuracy in the Patent System
68 Pages Posted: 1 Mar 2017 Last revised: 30 Apr 2018
Date Written: February 27, 2017
Because it must rely on imperfect information, the patent system will inevitably make mistakes. To determine how the system ought to err in cases of uncertainty—and whether a given mistake is worth correcting—scholars have composed a simple picture of the consequences of error in either direction. On the one hand, erroneous patent awards impose unjustified costs. On the other hand, erroneous patent denials discourage successful inventors and reduce incentives to create in the future. The result is an essentially indeterminate balancing, in which policies of overly liberal awards drive up costs, and policies of overly cautious awards drive down incentives.
As this Article will show, this conventional approach to error costs understates the role that accuracy plays in producing the benefits of the patent system. Critically, the incentives to invent created by the patent system depend on the difference between an inventor’s expected returns if she invents and her expected returns if she does not invent. Erroneous patent awards do not simply increase the costs of the patent system but also narrow the expected difference between inventing and not inventing. Undeserved patent rights thus undermine the very incentives the system is intended to create.
This Article presents a framework for evaluating the value of accuracy in the patent system. As it turns out, the consequences of an undeserved patent depend significantly on a factor that has not been previously given much attention: whether the unsatisfied patentability requirement is one that seeks to influence a mutually exclusive choice. Some patentability doctrines satisfy this condition, but others do not. The result is that erroneous patent awards may in some ways be more harmful and in other ways less harmful than previously thought.
Keywords: patents, prizes, error costs, burden of proof
JEL Classification: K23, K41, O30, O31, O32, O33, O34, O38
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