Patents fail for nonexcludable goods

So far, the analysis has focused on various parameters that could result in a gap between market value and social value in different contexts. Yet, even if market demand accurately reflected social value, some types of innovations are more difficult to exclude than others. As a result, expected private returns to inventors under the patent system may not correlate with market value. This point has been recently made by Amy Kapczynski and Talha Syed, who demonstrated, through detailed examples in the context of public health, that the ability to exclude others, upon which the patent system relies in providing incentives to invent, operates in asymmetrical ways for different kinds of information goods.195 Hence, “patent rights have the potential to predictably and systematically distort private investment decisions over innovations by overstating the value of highly excludable information goods and understating the value of highly nonexcludable ones.”196 Ultimately, valuable innovations that happen to be closer to the nonexcludable end of the continuum may be undersupplied by the patent system.

In the environmental context, this may be relevant, for instance, with respect to industrial methods that are designed to “green” certain aspects of the production process of manufactured goods.197 To the extent that the use of such a “green” production method by competitors of the patent owner can be kept in secrecy and is not embedded in the final product, it might not be possible for the owner of a patent on such a method to detect and prove infringement.198 In light of the difficulty to enforce exclusive rights in such inventions, patents may fail to serve as an effective incentive mechanism in this context.