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Similar factors apply to the issue of patents. Much university research in economics is funded by companies with interests in patents. These companies may not do anything as crass as ordering professors to take a particular position, but influence can work more subtly, as stated by Edward Said:

Nothing in my view is more reprehensible than those habits of mind in the intellectual that induce avoidance, that characteristic turning away from a difficult and principled position, which you know to be the right one, but which you decide not to take. You do not want to appear too political; you are afraid of seeming controversial; you want to keep a reputation for being balanced, objective, moderate; your hope is to be asked back, to consult, to be on a board or prestigious committee, and so to remain within the responsible mainstream; someday you hope to get an honorary degree, a big prize, perhaps even an ambassadorship.50

Patents discourage innovation. When Steve Jobs and Steve Wozniak started developing the first Apple computers in a garage, they did not worry much about patents. They shared and borrowed ideas from their network of fellow geeks. If they had had to pay royalties on all the software they borrowed, today we would have no email, no smartphones, no What’s App, no Google. The most important software innovations in the US happened before the US began allowing software patenting (in Europe, software patents as such are not possible.) More recently, the pace of innovation slowed.

Today, patents are often used as weapons. In the 1950s, an American inventor filed so-called “submarine patents” to claim an early form of machine vision technology; when others decades later developed bar code and other machine readers he sued to protect his previously unnoticed patents and collected more than $1 billion – even though the real development work had been done by others.

Why do we need patents? The usual argument, which we shall call the “second best” theory of patents, argues that patents are needed to solve a double problem: a problem of incentives, on the one hand, and a problem of knowledge diffusion, on the other hand (the so-called Arrow dilemma, 1962, which highlights the difficulty to achieve both optimal incentives to produce knowledge, and optimal level of dissemination of the knowledge produced [3]

[3]

More generally, within such nonmarket institutional arrangements, there is a greater role for the state in setting and implementing innovation policy, and hence, it is easier to account for environmental considerations. Under such schemes, it is the government—rather than the market—that establishes the criteria for receipt of a reward.239 The government sets the targets within a prizes scheme, defines categories of research within which grants are available, and prioritizes research projects conducted in its own laboratories.240 In doing so, the government may prioritize the need to develop climate change technologies. The government may also set various criteria and conditions for funding that relate to the environmental impact of the innovation at hand. Such criteria and conditions “could be incorporated, for example, into guidelines for peer review of grant applications [or] in award criteria for procurement auctions.”241 Under both the prizes and public-funding schemes, the government sets the size of the reward as well. With respect to prizes, though administrators commonly fix the reward in advance, various scholars have advocated for the use of sales data—or other proxies of the invention’s actual impact—in setting the reward.242 Notably, in the specific context of climate change technologies, due to the significant gap between market demand and social value, sales data cannot serve as a good measure of social value, and other assessments of ex post outcomes (e.g., in terms of reduced greenhouse gas emissions) need to be articulated.243 One “side benefit” of nonmarket funding mechanisms—which is, in fact, often presented as their main virtue—lies in their potential to foster innovation while avoiding the deadweight loss resulting from noncompetitive pricing of patented inventions.244 This is, indeed, a major benefit in the particular context discussed in this Article, in light of the significance of ensuring broad access—both by consumers and by follow-on inventors—to climate change technologies.245

Prizes have been recommended by many leading scholars to encourage innovation in situations where the patent system fails.124 Because these mechanisms provide an incentive distinct from market demand, prizes may encourage the development of green technologies despite the market's tendency to underrepresent the social value of these innovations.125 The recommended prize fund should offer rewards for a wide range of remediation technologies so that a "full toolbox" of innovative solutions may be developed. Recent trends suggest that members of Congress have begun to recognize the value of prize-based incentive mechanisms. In 2017, for example, Senator Bernie Sanders introduced the Medical Innovation Prize Fund Act.126 This bill proposed the creation of a prize fund of over $100 billion to reward medical innovations based on various criteria.127 Some argue that, because government actors lack the private information that generates market prices, government-led prize funds [*130] allocate resources less efficiently than the patent system.128 Sanders' proposal seems to mitigate these concerns by establishing a diverse board (made up of consumers, R&D entities, health insurance companies, and more in addition to government officials) to administer the fund.129 While market-value input is less important in the green innovation context, as discussed previously, stakeholder input is certainly encouraged.

That window of exclusivity is somewhat arbitrary but has become standard throughout the world. Although the patent system has served inventors well, it risks being an obstacle to the widespread adoption of technologies that could reduce greenhouse gas emissions. Many of the people and places that would benefit most from these innovations cannot afford the licensing fees, and so the tools that could lead to a low-carbon, or even carbon-negative, future remain out of reach to them.

Consider the case of Elysis, a joint venture between Alcoa and Rio Tinto, two of the world’s largest aluminum producers, which has invented a process for smelting aluminum that eliminates direct CO₂ pollution. This could be a significant win for the climate, because making this ubiquitous metal generates about 1 percent of global carbon dioxide emissions. The technology can be installed in new mills or retrofitted to existing ones — but only if the owners of such places can afford it. The company has patented its system and is selling low-carbon aluminum to high-end buyers like Apple. It also plans to license the process to other aluminum producers.

Again, the design of IPR regimes – in developed and developing countries alike – will be an important factor in the success or failure of countries in meeting these objectives.

There are several key intersection points between IPR, climate change and development that policymakers should take into account.

“PATENT DATA ARE A VERY “NOISY” MEASURE OF INNOVATION BECAUSE MOST INNOVATIONS ARE NOT PATENTED AND MANY PATENTED INVENTIONS ARE NOT VALUABLE.”

On the other hand, patents have been awarded for thousands of seemingly useless inventions like bird diapers, a beer keg hat, and an “animal toy” that can be made of wood or wood composites and looks very much like a stick that might be thrown for a dog to fetch. There are also prophetic patents that are granted for things that don’t exist and may never exist, like Amazon’s patents for a flying warehouse, underwater warehouse, delivery blimp, and underground delivery tunnels.

We have written many times about why the patent system is a bad fit for software. Too often, the Patent Office reviews applications without ever looking at real world software and hands out broad, vague, or obvious patents on software concepts. These patents fuel patent trolling and waste. As machine learning and artificial intelligence become more commonplace, it is worth considering how these flaws in the patent system might impact advances in AI.

Some have worried about very broad patents being issued in the AI space. For example, Google has a patent on a common machine learning technique called dropout. This means that Google could insist that no one else use this technique until 2032. Meanwhile, Microsoft has a patent application with some very broad claims on active machine learning (the Patent Office recently issued a non-final rejection, though the application remains pending and Microsoft will have the opportunity to argue why it should still be granted a patent). Patents on fundamental machine learning techniques have the potential to fragment development and hold up advances in AI.

Increasing use of artificial intelligence (AI) in research intensifies the existing debates on pharmaceutical patents. Inventions created or enabled by AI raise questions about patentability and patent policy in general. Faster and more efficient R&D weakens justifications for pharmaceutical patents.

While continued incentivization is essential, lawmakers must consider alternative systems, which prioritize access alongside incentivization in order to advance health care as a human right. One way to increase access while maintaining the necessary incentives for innovation is to reform standards of patentability, leaving some essential medicines enabled by AI outside the sphere of patent protection, and fund R&D through prize funds and tax incentives in the absence of patents. Alternatively, a shorter exclusivity term, followed by a licensing period allowing competitors to make and sell the related medicines against a licensing fee, will enable competing products to enter the market earlier and drive prices down and provide innovating companies a method to recoup investments.

Some opinion leaders have argued that patents are necessary because they provide incentives to conduct risky, high-cost research and development (R&D). Patents ensure that the profits on the few success stories cover the costs of the total R&D companies conduct. Although such expenditures absorb less than 20 percent of the big drug producers’ revenues, drug patent advocates fear that abolishing them will cause research to slow down, and that any benefit generated by having more vaccine producers will be offset by impeded progress in research.

Another worry is that if fewer new medicines are produced, the desire for more will eventually justify some heavy government intervention. This would lead to the creation of state or state-controlled companies and discretionary subsidies to privileged producers. Disaster would follow.

Furthermore, and probably even more important, this is almost certainly not the last pandemic we will face. Urbanization, the spread of factory-farming methods, and globalization all combine to increase the odds that a new virus will make the jump from animals to humans and then spread rapidly around the world. Prior to the current pandemic, the 21st century already saw outbreaks of SARS, H1N1, MERS, and Ebola. Everything we do and learn in the current crisis should be viewed from the perspective of getting ready for next time.

THE NATURE OF THE PATENT BARGAIN

The patent system has long been criticized for limiting access to pharmaceuticals. Patents grant inventors a limited period of exclusivity with an attempt to allow recoupment of investments in the invention process. In the pharmaceutical industry, this exclusivity and the resulting lack of competition leads to exorbitant prices. High prices limit access to potentially life-saving medicines and hinder achievement of the "highest attainable standard of health," which several international instruments recognize as a human right.

The pharmaceutical industry claims patents are essential to encourage innovation in risky, lengthy and costly research and development (R&D) processes. But it has yet to put forward indisputable evidence to the actual effects of patents on innovation.

Inducement prizes have received little attention in the empirical and theoretical literature. The only direct evidence we found on inducement prizes having an effect on innovation comes from a study on prizes for agricultural technology in late 19th and early 20th century England. While the available literature points somewhat towards inducement prizes having favorable outcomes, we don’t think the evidence provides a strong case for using inducement prizes. A noteworthy finding is that inducement prizes can leverage large amounts of private capital (~2-50x the cash reward), but we don’t know how representative this finding is.

We think that there is somewhat more (and more convincing) evidence in favor of recognition prizes. We would advise having a deeper look into the literature on recognition prizes, though our guess is that there is not much more to be found than what we already have. A good starting point could be to skim further articles we found on recognition prizes but did not have time to review (listed ).

Our patent system is a mess. It’s a fount of expensive litigation that allows aging companies to linger around by bullying their more innovative competitors in court.

Critics have suggested plenty of reasonable reforms, from eliminating software patents to clamping down on ”trolls” who buy up patent portfolios only so they can file lawsuits. But do we need a more radical solution? Would we be possibly be better off without any patents at all?

The patent system, and the intellectual property regime in general, is one of the many available models aimed at incentivizing innovation.199 Government incentives such as prizes and grants currently complement patents in fields of research where additional incentivization is necessary.200 Many countries also rely on tax incentives to increase R&D activity.201 The United States offers tax incentives for research and experimental expenditures, as well as R&D tax credits, including a credit for pharmaceutical companies engaged in orphan drugs 202 research.203 While prizes and grants directly contribute to R&D funds, tax incentives decrease R&D costs.204

In recent years, costs associated with the patent system have increased interest in alternative incentive methods.205 “[S]trong public interest” in access206 has led to a number of proposals specific to the pharmaceutical industry. These proposals include a global R&D treaty207 and a national medical innovation prize fund,208 both relying on a portion of the gross domestic product (GDP) to fund R&D in the health care industry.209 The models proposed in the following section rely on funding through similar mechanisms to accommodate innovating companies in the absence of patent rights.

D. Incentivizing R&D for Essential Medicine in The Absence of Patents

1. A National Prize Fund

One alternative to the patent system is called the prize system. This entails giving a prize to whoever comes up with an innovation, or at least those innovations that meet announced objectives. For instance, the person who finds a cure or a vaccine for AIDS or for malaria would get a big prize. If a person comes up with a drug with slightly different side effects than existing drugs (but which is otherwise no more effective) he or she might get a small prize. In other words, the size of the prize would be calibrated by the magnitude of the contribution. This idea is actually an old one. The Royal Society of Arts and Technology have been advocating and even using prizes to incentivize the development of needed technologies for some two centuries. For instance, they thought it was important to come up with an alternative to chimney sweeps; small, underfed boys used to be sent down chimneys. It was not good for the health of these young boys and not a socially desirable way of cleaning chimneys; but not cleaning chimneys meant increasing the risk of fire, with serious consequences. Thus, the Royal Society offered a prize to anybody who invented a mechanical way of cleaning chimneys. The prize provided an incentive, and it worked. A patent system might also have motivated the development of a mechanical device (though it did not), but if it had, there might have been a problem. The owner of the patent might [*1720] have been tempted to attempt to maximize the return to his innovation by charging a high fee for its use. That might mean that only rich families could afford to use the mechanical device, and young boys' lives would have continued to be put at risk. There are a whole host of other things for which they have offered prizes. The current patent system is, of course, similar to a prize system, but it is a very inefficient one, because the "prize" is a grant of monopoly power, and with monopoly power there are incentives to restrict the use of the knowledge. One of the characteristics of a desirable innovation system is that the ideas and innovations, once developed, be widely used and disseminated, but the patent system is designed to restrict the use of knowledge. The alternative is to use the competitive market to ensure efficient dissemination; giving a license to a large number of people uses the force of competition to drive down the price and to increase the usage of the knowledge. In both cases, market forces are used: one is the incentive of a monopoly to restrict knowledge and raise prices, the other is the market force of competitive markets to drive down prices and extend the benefit of knowledge widely. Moreover, the prize system has the advantage that there is less incentive to waste money on advertising and to engage in other anticompetitive behaviors designed to enhance monopoly profits. I mentioned that the drug companies spend more on advertising and marketing than they do on research. These marketing expenditures are designed to reduce the elasticity of demand, which allows the owner of the patent to raise prices and increase monopoly profits. From a social point of view these expenditures are totally dissipative.

That is by far the most incendiary proposal the Electronic Frontier Foundation offers in its comprehensive report on overhauling a painfully broken patent system. The report, two years in the making, suggests everything from strengthening the quality of patents to making patent litigation less costly. And there, on page 27 of the 29-page report, is "Abolish software patents."

The argument is that software patents may not just be flawed, but utterly unnecessary. This hasn't always been EFF's stance on patents, says Adi Kamdar, one of the report's authors. But as the group compiled the report, it received 16,500 public comments from people in the business, academic, and policy communities. The idea that patents should be eliminated entirely was a common theme.

Too little information When an inventor gets a patent, she is supposed to reveal the secret sauce behind the invention in the patent, a public document. This allows scientists and engineers to learn about the invention and use that information to improve the technology. Or at least, that’s the theory. In practice, many inventors make shoddy disclosures. Experiments reported in patents are sometimes and often rely on dubious methodology. For instance, patent law permits an inventor to disclose the fictional finding that a drug treats cancer as evidence that she deserves a patent on that drug. Inventors applying for patents are allowed to include predicted experimental results. The intent is to allow for earlier disclosure and to help smaller companies secure funding. But when evidence in patents is wrong, other innovators can be . Further, if other innovators want to figure out if the patented drug really treats cancer – or any other disease – they need a license from the patentee. Sometimes key pieces of evidence are missing entirely from patents. This happens when a patent covers aspects of a technology that the patentee didn’t actually invent. Imagine discovering that paper is a mediocre incandescent conductor in light bulbs and using that discovery to get a patent covering thousands of other conductors, including ones that, unbeknownst to you, work much better. Later innovators might want to figure out whether other substances are better conductors than paper, but they can’t even start experiments without a license. . He was after discovering a far better conductor than that discovered by the patentee – but because the patent was written broadly, it nevertheless covered Edison’s invention. There is also too little information about the boundaries of patents. When an inventor gets a patent, she is also supposed to provide clear boundary information – what a patent application covers and what it doesn’t – to the public about her patent rights. The patent system fails to ensure this, however. The boundary information in patent applications is hidden for until the application is published, and even longer if the boundaries change later during examination. Once the patent is granted, lawyers, judges and the public often have difficulty reaching agreement on the meaning of boundary language that may be intentionally vague or ambiguous.