proliferation of software and business method patents a weakening of the standards of novelty and non-obviousness, thereby undermining the purpose of patents to provide an incentive to those who innovate in a genuine way. The proliferation of patents in biotechnology, especially those involving DNA sequences, has raised a different set of concerns—whether intellectual property rights are becoming so fragmented that assembling the rights necessary to commercialize a new therapy or drug is prohibitively costly and whether some promising lines of research are abandoned prematurely.

This volume assembles papers commissioned by the National Research Council’s Board on Science, Technology, and Economic Policy (STEP) to inform judgments about some of these institutional and policy developments made over the past two decades. The chapters fall into three areas. The first four chapters consider the determinants and effects of changes in patent “quality.” Quality refers to whether patents issued by the U.S. Patent and Trademark Office (USPTO) meet the statutory standards of patentability, including novelty, non-obviousness, and utility. The fifth and sixth chapters consider the growth in patent litigation, which may itself be a function of changes in the quality of contested patents. The final three chapters explore controversies associated with the extension of patents into new domains of technology, including biomedicine, software, and business methods.

The style of these contributions varies. Several are based on descriptive and in some cases qualitative data. Others develop and test hypotheses in the manner of empirical economics. And one chapter is a theoretical exploration of the costs and benefits of a proposed institutional change intended to improve patent quality. These contributions are discussed below.

We are interested in questions of patent quality, litigation, and extension into new areas of technology because we are concerned with how the patent system affects the rate and direction of technological change. The trouble with trying to understand the import of the changes in patent policy over the past two decades is that we have a limited understanding of the effects of the patent system to begin with. There has been little systematic empirical analysis of the impact of patents on innovation. Even the narrower question of whether patenting stimulates research and development investment has only recently begun to be studied.

There are theoretical as well as empirical reasons to question whether patent rights advance innovation in a substantial way in most industries. The rationale for patent protection is to augment the incentives to invent by conferring the right to exclude others from making, using, or selling the invention in exchange for the disclosure of its details. Although the prospect of monopoly rents should induce inventive effort, the costs of disclosure can in some circumstances more than offset the prospective gains to patenting (Horstmann et al., 1985). “Strengthening” patent protection enhances the value of not only a given firm’s patents but also those of its rivals who may be able to constrain the original firm’s ability to commercialize its innovations (Jaffe, 2000; Gallini, 2002).

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