The patent system as practiced in the United States is too broad, too loose, and too expensive. As Posner shows, excessive trolling is an excellent illustration of some of these weaknesses. Yet most of the largest patent disputes, such as that between Apple and Motorola, do not involve trolls, but rather expensive and time-consuming litigation between producing companies in the same industry who differ over patent priority (although Google and other producing companies collect patents too). Reforms of the system are needed that greatly narrow the granting of patents in order to cut down such costly and unproductive litigation.
Many individuals and small companies do not have enough resources to either develop their inventions into products and services, or to litigate against bigger companies that infringe their patents. As a result, they might sell their patents to bigger companies that use them, or to intermediaries that may in turn sell or license their patents. “Patent assertion entities”, less flatteringly called “patent trolls”, are intermediaries that sometimes litigate against companies they claim infringed on the patents they bought. With a well designed and functioning patent system, this type of intermediary would be valuable in the patent market, as they are in the housing and stock markets. The problem arises because a defective patent system creates opportunities for hold ups and excessive litigation by these intermediaries and by others that hold patents.
Major reforms to reduce these unproductive opportunities would include lowering typical patent length and the scope of innovations that are eligible for patents. The current patent length of 20 years (longer for drug companies) from the date of filing for a patent can be cut in half without greatly discouraging innovation. One obvious advantage of cutting patent length in half is that the economic cost from the temporary monopoly power given to patent holders would be made much more temporary. In addition, a shorter patent length gives patent holders less of an effective head start in developing follow on patents that can greatly extend the effective length of an original patent.
Even pharmaceutical and biotech companies, the main examples where patents are clearly necessary to encourage innovation, usually do not need more than about a decade of monopoly power to encourage their very large investments in new drugs. This is the case in many actual examples where after about ten years molecularly similar drugs often are patented and compete against drugs with the original patents.
Narrowing the type of innovations that can be patented is a more challenging task than reducing patent length. The first step is to recognize that many innovations presently cannot be patented. A major example is the inability to patent scientific theories and concepts, such as Einstein’s theory of relativity, Darwin’s theory of evolution, or Keynes’ model of the macro economy. The presumption in excluding basic scientific knowledge from the patent system is that the cost of restricting open access to such discoveries far exceeds any gains in encouraging the development of scientific concepts through granting temporary monopolies to the creators. To offset the effect of this exclusion from patent protection on the incentive to discover, individuals and governments have created prizes and awards, like the Fields Medal and Nobel Prizes, for mathematical and scientific discoveries.
In narrowing the type of innovations that are patentable, one can start by eliminating the patenting of software. Disputes over software patents are among the most common, expensive, and counterproductive. Their exclusion from the patent system would discourage some software innovations, but the saving from litigation costs over disputed patent rights would more than compensate the economy for that cost. Moreover, some software innovations would be encouraged because the inability to patent software will eliminate uncertainty over whether someone else with a similar patent will sue and do battle in the courts.
Instead of relying on the legal system, creators of new software may then try to protect their innovations through secrecy. Even when their secrets might be learned and sold by employees, companies that innovate could gain because they then would pay less to employees in a position to profit from learning about these innovations by selling the information to competitors.
In addition to eliminating patents on software, no patents should be allowed on DNA, such as identification of genes that appear to cause particular diseases. Instead, they should be treated as other scientific discoveries, and be in the public domain. The Supreme Court recently considered a dispute over whether the genes that cause BRCA1 and BRCA2 deviations and greatly raises the risk of breast cancer is patentable. Their ruling banned patenting of human DNA, and this is an important step in the right direction.
Other categories of innovations should also be excluded from the patent system. Essentially, patents should be considered a last resort, not a first resort, to be used only when market-based methods of encouraging innovations are likely to be insufficient, and when litigation costs will be manageable. With such a “minimalist” patent system, patent intermediaries would have a legitimate and possibly important role to play in helping innovators get and protect their patent rights.