The economic welfare attributed to the patent regime has been a topic of constant debate amongst academics, economists, lawyers etc. The primary criticism against according property rights in inventions concern the socials costs imposed and the proportionality of these costs with benefits. Though there are methods that the patent regime undertakes such as limited term to reduce the social cost imposed, arguments against the characteristics of patenting in relation to social justifications still stand strong. To estimate the social value of patents, relative quality of patents are looked at since patent applications are required to cite prior patents of which applicants are aware and hence, the number and character of citations to a given patent are used and a patent is considered more valuable if cited in more areas of technology. This however, does not reveal any information about whether the invention would still have been made without the prospect of patenting.
Patent renewal rates provide an insight into the value accorded to patents by the industry members themselves. Patents have to renewed by the patentee during the term for continual enjoyment and the low depreciation rates in spite of the high renewal fees is evidence of the value accorded to the protection conferred by these patents. The objective behind these renewals can be deemed to be the need of the firms to cover their fixed costs. This raises the question that to what extent is patent protection the only method of ensuring that copying does not occur? Sometimes, even without a patent regime, the cost of imitating in industrial innovations is extremely high due to the learning curve that must be overcome. Though, in practicality, cost imitation is likely to be much less than the cost of innovation as seen in the drug industry whereby research and development is 30% of the total cost of a new drug. Therefore, without a patent regime innovations will be discouraged as no firm will want to take the initiative for R&D for fear of cheap imitators.
The acceptance of patents as a social beneficially tool is also dubious when considering the difficulty of inventing around patents. High transaction costs are imposed on firms who want to innovate around patents as licenses will need to be obtained for all of them. This will hamper further innovation for fear that whilst experimenting, innovators might infringe upon patent rights. However, this does not ultimately hamper the society as inventors will be forced to negotiate and thereby will employ the best technologies possible after reconciling the original with the improved innovation. In the United States, the Hatch-Waxman Act of 1984 allows drug manufacturers to begin the FDA testing of drug before patent on brand name expires thereby interpreting an ‘experimental use’ doctrine of patent law. This is not applicable for scientists in patented research tools thereby continuing to present the problem of inventing around the patent and high transaction costs. Patent laws have found ways to combat these problems through the imposition of doctrines such as the ‘reverse doctrine of equivalents’ which purports that if the contribution made by the improvement greatly exceeds contribution by original patent, the improver is allowed to practice his invention without infringing the original.
The effect of patents on the social sphere can also be analysed looking at the research conducted by universities. The incentive of income through patent licensing has induced universities to substitute the basic research conducted for applied research. This may result into a net social loss as the focus from basic research would have shifted. On the other hand, universities can use applied research to undertake research into fields that are socially beneficial whereas companies would undertake applied research only to the extent that it would benefit them.
On the whole, though patent accords monopoly over a certain innovation to the patentee, this innovation occurred due to the investment of the inventor in terms of R&D, time, effort, labour etc. If this investment is not rewarded is sufficient ways, ultimately innovations will be discouraged. The social gain through patent protection is ultimately higher than the cost imposed by a patent regime.
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