IP insider: Strengthening patent value to incentivise innovation in China

When Joseph Schumpeter coined the term ‘innovation economy’ in 1942, the famed economist could not possibly have imagined precisely what the state of technological innovation and global connectedness would look like another century into the future. Today, we have additional visibility into what 2042 might look like. Schumpeter’s insight was that a concentration on institutional evolution, investment in human capital, entrepreneurship and technological progress could lead to faster and further economic growth than could a pure focus on increasing capital and labour inputs.

As an important stakeholder in the international community, China has achieved considerable progress in crafting policies that have fostered the development of new and promising innovations. Despite this, there are still significant impediments to China’s continued advancement, and its path to becoming an ‘innovation-led’ economy will be rocky and steep without proper policies that favour greater levels of innovation for a new standards-based era.

One practical step that China can take towards becoming an innovation-led economy involves strengthening the value of patents. China should promote and adopt legislation that affords greater value for patents as a means to incentivise innovation. Policy makers in China should reject the contention that patents are primarily pre-emptive in nature and that innovation can flourish where patents have low value.

However, China must recognise that higher value attached to patents is likely to mean more disputes. Disputes follow value, and with more disputes, there will inevitably be some aggressive tactics. However, there is no policy that can thwart all aggressive litigation tactics without also handicapping a country’s patent system and impeding growth. It is unavoidable that entities considering themselves to be valiantly engaged in the defence of lawful rights will be characterised by opposing parties as abusers. This age-old ‘two sides to every story’ dilemma is the very reason that each nation has a justice system able to conduct trials and declare judgments. To begin any discussion about balanced IP rights strong enough to meaningfully incentivise innovation, we must first accept that any system deemed ideal by one constituency will almost certainly be perceived as flawed by a multitude of others. Balance will always be disparaged as imperfection by interested parties. This is as much the case today as it was in previous centuries – in which a great many inventors endured and prospered.

Another longstanding reality that remains true today is that the principal alternative to a strong patent system is trade secrecy. Unavoidably, a trade secrecy regime results in barriers to innovation, inefficient allocation of resources and a collective behavioural diversion from exploiting technology to concealing it. Pushing a country into this practice by devaluing patent protection would have a chilling effect on cooperation and advancement for China.

While some inventors profit handsomely from their work, an infinitely larger portion of the value produced by the patent system accrues to the public at large. The inventor’s share provides the incentive to invest in innovation, created by the promise of a future patent

A narrative advocating low value for patent rights capitalises on society’s collective short-sightedness. The pre-emptive aspect of patents garners disproportionate public attention because the grant of temporary exclusive rights to patent owners is the feature that is most readily apparent to the public. The higher prices of today are easily lamented, while the unquantifiable potential of the inventions of tomorrow is less readily appreciated. In addition, it is extremely difficult to visualise a world in which our currently prized devices, methods and tools were never invented because innovators were not offered sufficient incentives.

While it is true that some inventors profit handsomely from their work, an infinitely larger portion of the value produced by the patent system accrues to the public at large. The inventor’s share provides the incentive to invest in innovation, created by the promise of a future patent. It provides the potential to recoup past investments through a time-limited monopoly and the corresponding opportunity for royalties, which can also provide capital to fuel future innovation. In exchange, the public receives a contribution to the general knowledge pool through disclosure of the invention and the right to practise the invention freely once the patent expires. The bargain allows all of society to benefit from the inventor’s undertaking of the risk, labour and dedication required to innovate.

This system has worked well for centuries. Thomas Edison once proclaimed that his “main purpose in life was to make enough money to create ever more inventions”. In the long term, society gets a great deal. It is far too easy to complain about the price of R&D once an invention is in the marketplace, but much more difficult to contemplate the lack of advancement where patent protection is unavailable or where the value of patents is so low that they do not meaningfully incentivise investment in innovation. In order to accelerate China’s development to become an innovation-led economy, policymakers should strengthen patent value to promote innovation and the long-term wellbeing of China’s citizens.

David J Kappos is the former director of the US Patent and Trademark Office and a partner at Cravath, Swaine & Moore LLP, New York, United States

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