Perm solves best – aligns incentives to innovate

The point of this paper is to assess the proposals for patent prizes in light of practicality and public choice concerns, and to propose a workable prize system. Of course, it is easy to criticize as impractical any alternative to the patent system based on prizes that approximate social value. I believe the public choice issues are more fundamental. Prize systems introduce a point in the patent process where political actors can distort the decision on the amount of the prize and the patentee’s decision to accept the prize. Such an entry point encourages distortionary investments. Confiscation of patentees is likely under the prize system where patents are put into the public domain. The alternative I propose would award a prize in addition to the patent. No patents would go into the public domain except upon expiration. The patent-plus-prize system minimizes public choice costs and aligns private and social incentives to innovate.