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Faculty of Law, University of Sydney
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Loughlan, Patricia --- "Patents: Breaking into the Loop" [1998] SydLawRw 24; (1998) 20 (4) Sydney Law Review 553

Patents: Breaking into the Loop


1. Introduction

In the dominant and hitherto mostly untroubled modern understanding of patents and patent law, the patent is an able instrument of public economic policy and patent law is largely a complicated but coherent legal embodiment of that policy. The turbulent Victorian era in which patents were politically charged components of public debate seems to be long ago and long over and twentieth century patent waters have largely been calm. That seems to be changing. Patent regulation has become a recurrent theme in contentious international negotiation and trade-based animosity. Specific patent decisions by courts and patent offices, which might have been expected to head off into an oblivion broken only by patent experts and by the trade rivals of the relevant patent holders, have themselves increasingly become a focus for public and private censure on many levels. When the simple turmeric plant or the seeds of the Indian neem tree yield patentable products to American scientists, the resulting patents not only do not stand unnoticed, they do not stand without riots and deaths in India, challenges in courtrooms and quietly outraged commentary in the New Scientist. When crucial data is withheld from disclosure at an international scientific conference in order to protect the speaker’s patent application, more than one scientist in the audience will feel and express contempt for a patenting process which is changing a research ethos born in the heroic period of scientific advance. It is evident that patent law is again becoming, as has been the case from time to time in its long history, subject to challenge over the legitimacy and efficacy of its objectives, values, techniques and results. The patent has begun to develop once again a political meaning and identity beyond the restricted modern economic understanding of its nature. This article will be about that meaning and that identity and it will seek in the patent instrument and in patent law elements of what Unger has called, “broader contests among prescriptive conceptions of society.”[1]

2. The Structure of the Article

Those principles, policies and theories of patent law which, taken together, comprise the mainstream discursive practices in the area seem to have, at their most abstract level at least, a near perfect and seamless internal consistency. They very neatly make a patent-legitimating loop in which private and public interests flawlessly merge. This article will seek, for the purposes of argument at least, to rend that consistency and open up the economic and the political nature of patents, patent law and even patent history to mildly critical view, to sketch out a way of breaking into the loop, as it were. It will therefore treat some of the key concepts and tenets in the dominant understanding of patents and patent law as open-ended, rhetoricallydirected constructs, ripe for challenge, interpretation, affirmation and dissension.

3. This is the Loop

It seems that patents function for the public good and in the public interest. The patent is an instrument of public, national economic policy operating through a property-based legal mechanism, which creates a limited term monopoly in the exploitation of an invention. Patents are enforced in each country by the neutral application of that country’s relevant determinate laws. Although short-term excess profits to the patent-holder are of course a potential consequence of the grant of the patent, in patent regimes, private gain is not pitted against the public good. Social returns from the invention of new products and processes are such that the incentives to invent and to disclose technical information to the public, which are, created by the patent monopoly clearly optimise economic welfare. In the absence of the patent monopoly, low imitation and reverse engineering costs and the public good characteristics of inventive knowledge would mean that commercial free riders could scoop off the profits from an invention without having to recoup the sunk costs involved in the knowledge creation. Patents nurture and reward genuine human inventiveness and since patents are granted only to new and non-obvious inventions, no existing interest or person can be said to be unfairly disadvantaged by the grant of a patent. Yes, it does seem that patents function for the public good and in the public interest.

4. Breaking into the Loop

The article will be structured through a sequential isolation and analysis of five of the cardinal ideas of what I have called the “patents loop”:

A. The patent is essentially an instrument of national economic policy;
B. The patent is a limited term monopoly created by a property based legal mechanism;
C. The patent provides an economic incentive both to invent and to invest in invention and innovation by solving the problem of market failure caused by free-riding imitation;
D. Only new, inventive and practical ideas which are disclosed to the public are patented, so no one loses and society gets valuable knowledge which would otherwise not have been disseminated; and
E. Patents are of territorial effect and are created and enforced or not by the laws of sovereign nations in pursuit of their national self-interest.
These ideas permeate law and legal thinking about patents throughout the developed world and not one of them, I would argue, should any longer be accepted as true without question or without knowing a lot more about what it means than may be apparent from the statement itself. The analysis will in each case not be a matter of attempting to “prove” or “disprove” the idea but of looking at its fuller meaning and at some of the effects, both domestic and international, of its acceptance.

A. The Patent is Essentially an Instrument of National Economic Policy

That the patent is one of the various instruments and measures which can be adopted by a government for the purposes of managing the nation’s economy and helping to achieve its economic objectives is not in itself a matter open for serious dispute, although the issue of whether the patent is in fact very effective for those purposes certainly is a matter of sustained, complicated and acrimonious controversy.[2] The point to be made here is just that the statement in question is immediately and almost self-evidently true to us precisely because it represents the dominant view of the nature of patents, and the very existence of a dominant view of the patent as a strategic economic instrument itself has certain consequences which may be worth exploring.

It means, for one thing, that the controlling discourse of the patent is economic and that it is accordingly quite difficult to talk or read or write about patents other than in technical economic terms. Expressions of concern about the consequences of monopoly, for example, need to be cast in terms of a dead weight loss, talk of the social benefits of patents has to be about externalities and so on. Not only is the talk almost exclusively economic, it is generally conducted within a particular analytical framework in which economic welfare is assessed only by reference to the Gross Domestic Product[3] (GDP) and criticism of patents focuses almost exclusively on how they affect growth in the real output of a nation’s economy or possibly the global economy. Non-economists, even clever non-economists, are thereby excluded from the patents discussion and their ways of thinking and speaking about the subject accordingly often seem inadequate, polemical or even useless. The existence or non-existence of a patents regime is viewed as a technical economic matter to be determined by economic experts and not something of general concern to the general public. The effect of the controlling and technical economic discourse made inevitable by the prevailing view of the patent as an economic tool, is therefore to help to remove the essentially rather simple patent construct from other ways in which it could be analysed and discussed within the social and political orders. It de-politicises the patent, in other words, and other ways of thinking and talking about patents are forced out into the margins of patent speech.

Since the economic analysis of the role of patents tends to take place within a mode of economic analysis which is based on an assumption that a society’s economic welfare is co-extensive with its GDP, calculations about the economic welfare of a society are made without taking into account things which are left out of the GDP calculation, such as, in particular, cultural, moral and environmental matters and considerations of the distribution of income within the society. The latter may therefore not be a matter for economists, but it certainly is a matter of undying concern and interest to people and the distribution of wealth within a society in fact inevitably constitutes the heartland of the politics of that society. Using technical economic reasoning, with its lack of interest in wealth distribution, to determine issues about the benefits of having or strengthening a patents regime therefore in fact functions or can function to de-politicise the patent instrument. If a society is debating whether or not to have a patent system, or how strong a patents system to have or how long a patent term ought to be, it is not enough, I would suggest, to simply adopt the dominant view of the patent as a purely economic instrument and leave it to the economists to work out a monetary measure of economic welfare which only looks to per capita GDP. Decisions about patents privilege some groups within a society and not others and redistribute wealth in a particular way, which a society, for its own reasons of culture or value or history, may or may not wish to tolerate, and those matters should become part of any national patent planning and debate. This is particularly important given that the resources and organisational capabilities of those who benefit from a strong patents regime in any given country are usually considerably more extensive, than are the capabilities of those who might benefit from a weakening of the regime but who may not be even slightly aware of that fact.[4]

Lawyers and legal academics can and do talk about patents, and the utilisation of the legal system to police the operation of the patent instrument forces the law’s own technical and limited language of cases and precedents and rules into the prevailing economic discourse. This is the one major incursion into contemporary economic patents speech, but it is quite narrowly circumscribed. Patent law is kept relatively formal and the potential for legal decisions about patents to function, for instance, as a kind of filter by which some inventions are, on the basis of the public interest, to be kept out of the realm of private monopoly has not been allowed to develop. It may be that, as Inlow, one of the most notable and interesting of patents scholars has remarked, “[o]ne of the great fictions in modern legal theory is that the determination of a patentable invention is a question of law”,[5] but the fiction is an enduring one. Efforts to politicise patents by introducing specifically moral or environmental considerations into the court-supervised and legally closely controlled patent-granting process itself are consistently slammed by those patents commentators, at least, who have professional connections with patent-owners[6] and generally rejected by the courts. Probably the most significant and seminal of such judicial rejections in modern times has been that of the Supreme Court of the United States in the case of Diamond v Chakrabarty,[7] where the validity of a patent on a living genetically-engineered bacterium was in question. In response to arguments presented to the court both by the opponent of the patentee and by amicus curiae, that considerations based on public health and environmental dangers ought to be taken into account in considering whether the invention was patentable subject-matter, Burger CJ held that the court was without competence to entertain the arguments. The avenue to a fuller social understanding of the patent instrument and its uses and effects does not, as yet at least, directly lie through the courts or the language of the law.

Once one recognises that the standard economic and legal analysis is only one way of understanding and assessing the patent instrument, though, other interesting modes of description and analysis start to open up to view. Patents have been and sometimes still are seen by participants and observers to be something besides just economic instruments of a national sovereign power. The patent was, for example, both a controversial, widely-resented apparatus for the paying off of the political debts of the sovereign in the Elizabethan era and a constitutional chess piece in historic struggles over the royal prerogative at that time. The story of patent use in the Elizabethan era is a well-known and a sorry one.[8] Consider how it was. Monopoly patents on the making or importing of designated products were granted by the sovereign under the prerogative power officially for the purpose of encouraging the introduction of new products and industries into England, but monopolies on basic commodities like salt and iron, which were not based on new industry or invention, were also granted to persons with influence at the court whose support the Queen wanted and needed. The Crown shared directly in the monopoly profits of the patent-holder, through an agreement negotiated as a condition of the granting of the patent, and further benefited, at least initially, by being shielded from the public opprobrium of those affected adversely by the patent, since their wrath tended to fall on the actual patent-holder and not on the Crown, which had granted the patent.[9] In 1601, however, there was a strong and open attack on what was said to be the Queen’s abuse of the royal prerogative to grant letters patent of monopoly and a declaratory Bill, entitled “An Act for the Explanation of the Common Law in Certain Cases of Letters Patent”, was actually introduced into Parliament for the purpose of delineating the exclusive circumstances in which patents ought to be granted by the sovereign.

The ensuing wrangle has been described as, “one of the most significant in British constitutional history.”[10] Elizabeth, rightly perceiving a threat to her prerogative power and rightly perceiving that power to be central to her capacity to rule as her ancestors had ruled, organised a compromise according to which the Bill would be withdrawn from Parliament in exchange for an undertaking on her part to thenceforth allow the validity of patents to be tried in the common law courts, that is, to “have a Tryal according to the Law for the good of the People.”[11] The prerogative power, which Francis Bacon, one of the Queen’s supporters, described as being such as to allow the Monarch to, “set at liberty things restrained by statute law or otherwise and ... restrain things which be at liberty”, was thereby preserved intact, at least on the surface, but its preservation came at a high price and in constitutional theory the incident represents a clear derogation from the reach of royal power.[12]

The subject-matter of the struggle and the focus of the contending forces were here of course patents and their uses. That’s what people were talking to each other about. But the struggle was clearly also one about many other things, like the nature and limits of contemporary governmental power, and the rule of law and the extent to which the Queen really still could “set at liberty things restrained by statute law”, and people were talking to each other about those things too as they wrangled about patents. One useful, or at least suggestive, way to think about the patent is as a kind of “nodal point” of specific communication circuits, that is, as a point about which people communicate with each other about certain things and thereby help to construct their own and each other’s ideas and values about other, bigger things and the patent was functioning, it seems to me, in these Elizabethan prerogative struggles, as such a nodal point for communication circuits between political interest groups.[13] And so too it is functioning in our own century when controversies erupt over the patenting of things like live animals or human umbilical cord cells or the process of cloning mammalian cells. Such controversies are not really about patenting at all, but about social and scientific developments of which the patent becomes a symbol and the controversies can help to force the construction of appropriate general social policies on such developments.

Inlow points out that the constitutional battle over the use of the prerogative power to grant patent monopolies was in fact, “the legal counterpart of the struggle of the free forces of enterprise against restrictions imposed by the sovereign”[14] and that those free forces of enterprise described the interests of the newly emerging commercial, trading class of manufacturers and shopkeepers against the great monopolists. Patents have in fact often been a contending point for clashing social classes and antagonistic economic interest groups. In the nineteenth century, for instance, there was strong agitation in England for the weakening or abolition of the patent regime from the free-trade movement, whose adherents contended, against the protectionists, that patent law was fundamentally incompatible with free trade.[15] Strange coalitions have formed. In the 1870s in the United States, for example, the National Grange (which represented farming interests), Socialist Labor and the American Prohibition parties all formulated resolutions and platforms for the reform and weakening of patent laws against what they perceived to be oppressive patenting by and in the interests of the manufacturing classes[16] (Note once again the circuits of communication around the patent nodal point. There couldn’t be many things which would get those particular interest groups talking to each other for a common purpose). When the issue of extending the patent term in Australia was aired in the early 1980’s, the protagonists were manufacturing firms arguing for an extension and primary industry, with miners and farmers, and the CSIRO, a publicly-funded scientific research body, arguing against.[17] As can be seen even from this truncated list of sectarian interests involved in some patents debates of the past, there are, or are at least perceived to be, winners and losers within any particular society when a patents regime is instituted or strengthened. Any perception of the patent as simply the economic instrument of a national sovereign power is therefore not entirely accurate, because the patent is also the economic instrument of particular classes or groups within the society and not others. Patent strength increases when the interests of those particular groups dominate and patents become a vehicle for the expression of the varying interests of social classes in an ideological struggle to have their particular interest identified with the “public” interest.

B. The Patent is a Limited Term Monopoly Created by a Property-based Legal Mechanism

This is, once again, an empirically accurate and, on the surface at least, uncontentious statement. According to the Patents Act 1990 (Cth), a statute which is typical, in this respect at least, of the patents legislation of almost all Western, industrialised nations, the granting of a patent creates in the patentee certain exclusive rights over the exploitation of an invention. Those rights are deemed to be the personal property of the patentee and are enforced by law for a limited period of time, here 20 years from the date of the patent.[18] The date of the patent is deemed to be the date of the filing of the complete specification for the patent.[19] The elements of limited term, of private property and of exclusive rights in the market are all here in simple and straightforward statutory language to support the accuracy of the proposition at which we are now looking, but legislation is not just the command of a sovereign body, as the positivists have it. It is a command in a context.

(i) The Patent Term

The patent instrument is by its very nature a limited term monopoly or so it has been understood over many centuries and in many jurisdictions. That the patent term shall be limited in duration is actually expressly written into the American Constitution, so that Congress is only constitutionally empowered to legislate with respect to patents and copyright, “by securing for limited Times to Authors and Inventors ...” those exclusive rights.[20] The patent term set up in the Venetian Patent Statute (1474), the earliest known patents legislation in Europe, was 10 years.[21] The period allotted to the patent grant in the Statute of Monopolies 1623 (UK), the first English patents legislation, was 14 years, which probably represented two seven-year apprenticeship periods, since one of the conditions frequently attached to the grant of a patent was an undertaking by the patentee to take on apprentices and teach them "the knowledge and mystery" of the invention.[22] The patent term now required by Article 33 of the TRIPS Agreement, is 20 years and that term is therefore now the international norm. The patent period in Australia was 16 years until the need for compliance with TRIPS brought about the extended term.[23]

So, why should the duration of a patent be limited? It is a form of property and, as has been pointed out a thousand times in arguments about intellectual property of all kinds, the property in a farm or a refrigerator or a bank account does not automatically expire with the passage of time. Why then should the property in an inventive idea expire? The short answer to the question is that there is a general social assumption that the patent term must be limited because there are winners and losers in the patents game and if the patent had no end the winners would win too much and the losers would suffer too much. Patent terms are all about allocation of benefits and the issue of the loser’s loss is particularly political when the loser is in fact, on one way of looking at it at least, the “public.” In an economic review of the patents regime conducted for the Australian government, it was remarked that the issue of how long a patent term should be is a matter, “at the heart of all patents policy – the problem of hitting the right balance between the public interest in restricting the grant of monopolies and the private interests of the patentee.”[24]

The issue of the appropriate and optimal length of the patent term gets very tangled up with issues about the legitimacy of the patent instrument and discussion of the former issue inevitably deals, whether overtly or not, with the latter. The standard arguments proffered for the existence of the patent instrument and the patent-owning classes are of roughly two kinds. One line of reasoning focuses on the idea of “natural justice” to the inventor and was classically put, as one would expect, in the preamble to an 18th century French patents statute:

That every novel idea whose realization or development can become useful to society belongs primarily to him who conceived it, and that it would be violation of the rights of man in their very essence if an industrial invention were not regarded as the property of its creator.[25]

If you wrested it from the earth or the sea, the thing is yours by the law of nature and the light of reason. If you wrested it from wherever inventions come from, so too it should be yours by the law of nature and the light of reason. The patent instrument turns the invention into ownable, excludable property and thereby supports the “rights of man in their very essence.” The natural rights theory does not fit easily with the limited term of the patent, though. Quite the opposite. If patents, like other forms of property, are justified by reference to the natural right of the creator, there is no plausible reason why patents should be limited in time when other forms of property are not.

One therefore of necessity falls back hard on the other of the standard patent justifications, that is, the “incentive” justification. This will be looked at extensively below, since it is actually proposition number three of my loop: the patent provides an economic incentive both to invent and to invest in invention and innovation by solving the problem of market failure caused by free-riding imitation. Why would anyone invent if others could come along and imitate and exploit the invention without having to recoup any of the costs incurred in the process of invention? We therefore need to have the patent to induce inventions but as one of these clever economists put it, “[i]f inventions fell like manna from heaven, there would clearly be no economic justification for monopolizing them or controlling access to them in any way.”[26] Adoption of the incentive-based justification for the patent monopoly entails adoption of a premise that patents are granted for and in the public interest. Patent terms, on this theory, should therefore be set only at a length wherein an optimum number of inventions will be thereby induced for the good of society, as balanced against the harm to society, through the distortion in the allocation of resources brought about by the rent-seeking behaviour of the patentees. But how can that length be known? As the many attempts to give a definitive answer to the question of the most appropriate patent term have concluded, there is in fact no economically verifiable or scientific way of doing so.[27] The patent term is a social construct, in short, like any other, and not a matter for scientific or economic “proof.” It therefore is and must remain the result of a balance struck by the political process between public and private interests, a matter about which people can contend using arguments which in part at least reflect their broader conceptions of society and its issues.

The political process by which the decision on patent term is actually made is, however, skewed by the fact noted above under proposition one, that patent decisions are not widely seen as political decisions involving winner and losers and possible conflicts between the public interest and private interests, but rather as technical, economic decisions suitable to be made by experts. The process is further skewed by the related fact that, as Mandeville pointed out, those who would benefit from a strengthening of the patents system such as an extension of the patents term, “are concentrated, powerful and active defenders of their interests. In contrast, those who would gain by patent reform are diffuse and hardly aware of their interest in the matter.”[28] The optimal patent period will depend upon the particular type of economy and phase of economic development in any particular nation and it has been shown that for the least developed countries a shorter period of patent protection is likely to yield a more positive welfare effect in that country than would the longer period common in industrialised countries.[29] In any event, the decision as to the optimal length of a patent term for any given nation is now even more removed from the political processes of that nation, given the requirement of the TRIPS Agreement that each signatory to the Agreement must provide for a twenty-year patent term.[30] National sovereignty on the issue has therefore, in effect, been lost and nations have yielded their rights in this area to determine the exact nature of the balance between public and private interests which would be most specifically appropriate to them.

(ii) The Patent as Property

The granting of a patent creates in the patentee certain exclusive rights over the exploitation of an invention and those rights are usually statutorily deemed to be the personal property of the patentee and if they are not expressly so deemed they are judicially and impliedly so understood, which comes to the same thing. The commodification of inventive ideas has been made possible by the patent instrument. Like all forms of intellectual property, though, the status of a patent as “property” is unconvincing in some ways. Let’s go back to an 18th century expression of why this should be so:

That ideas should freely spread from one to another, over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature ... and like the air in which we breathe, move and have our physical being, incapable of confinement or exclusive appropriation. Inventions then cannot, in nature, be a subject of property.[31]

Like the air in which we breath. (I know! Let’s buy and sell the air!). This is what economists call a “public good” which means that it is something in which use by one person does not appreciably decrease the amount available for other people to use, unlike a tangible object, for example, where use by one person must exclude use by another. In technical terms, it has a zero marginal social cost. Although it is too late in the developed world’s day to decide that public goods should not become private property, it doesn’t do any harm to mention the point every once in a while to keep it in people’s minds and make them feel slightly, maybe ever so slightly, abashed (or maybe not at all) when they talk easily and smoothly about the property in an inventive idea. In the contemporary patents scene, the likelihood of your support for the notion of the patent as property or, alternatively, your ability to see through the apparent “naturalness” of that notion may depend upon what sort of national home economy you are speaking from. A couple of historians of the recent GATT negotiations noted this in their analysis of what happened during those protracted and bitter negotiations:

From the perspective of the developed countries, intellectual property is a private right that should be protected as any other tangible property. From the perspective of the developing countries, intellectual property is a public good that should be used to promote economic development.[32]

Natural though the property relation may seem now, at least in the West, in fact patents have not always been viewed, even in the West, as being the “property” of the patentee, that is, as an assignable, devisable entity with market value, an object of exchange. Inlow has exhaustively traced the slow growth in the United Kingdom of the patent from franchise, that is, merely a privileged activity allowed by the Crown to certain specific persons, into a full-blown right of property available as of common right to everyone who fulfills certain set requirements. A mere power to act, given by the grace of and able to be revoked at will by the sovereign, slowly became a legal right to hold possession as against all the world including the sovereign.[33] Personal privilege became property right. The Statute of Monopolies 1623 (UK) itself did no more than control the sovereign’s prerogative and did not create any property rights in inventors, since the awarding of patents for inventive ideas remained discretionary and not a matter of right.[34] In the United States too, early statutory language authorizing or permitting the issuance of patents only gradually gave way to words compelling the issuance of the patent if the statutory requirements were met.[35]

Thomas Jefferson’s view of the patent was in accord with the early understanding of the patent as a franchise, not a right of property and he said that, “[s]ociety may give an exclusive right to the profits arising from them as an encouragement to men to pursue ideas which may produce utility, but this may or may not be done, without claim or complaint from anybody.”[36] Jefferson’s remarks indicate the fundamental conceptual and historical compatibility of the idea of the patent as a franchise with the further idea that patents are justified by their capacity to create an incentive to invent useful things. The significance of this, it seems to me, lies simply in the recognition that there is nothing necessary about the view of the patent as property; that the idea of patent as property is not inextricably tied to the idea of the patent as an incentive and the latter can function without the former. That the patent instrument can function and has in fact functioned as an incentive-creating device despite not necessarily being available as of right to anyone who meets certain basic requirements is something which the designers of a patents regime in any particular country could usefully keep in mind. It may be that the cultural and economic imperatives of a nation in a particular stage of development are such that the interest of the public in a flexible patent-granting regime should outweigh the considerations of equity and fairness to individuals which such a regime would also raise.

(iii) Patent as Monopoly

Regardless of whether it is called a monopoly or not, and as to that see below, the presence of a patent on a product or process is likely have an effect on the structure of the market for that product or process. Put simply, in a fully competitive marketplace, there will be substitute products for a consumer to purchase in response to changing prices. Producers of the product are therefore, potentially at least, subject to price pressure. In a fully monopolistic market, there will be no substitute products. The producer is not subject to price pressure because consumers have no substitute product to turn to and buy instead. The price can be set above a competitive level and the consumer will have to pay more or forgo the product.

The producer of a patented product can find itself in a marketplace characterised by either of these extremes. For example, suppose there is a drug which is the only drug to treat a particular disease. If there is a patent on the drug, no one except for the patent-holder or its licensee, for the term of the patent, can produce or exploit that drug, with its particular patented chemical composition. A complete monopoly can be achieved. There is no substitute product for the consumer to purchase. No other drug treats the disease. The patentee can therefore engage in rent-seeking behaviour, that is, can attempt to obtain an economic return greater than the cost of the drug’s production, (bearing in mind that the concept of cost of production includes an ordinary economic return to the producer). There is another market possibility, however, and that is that another drug, with another chemical composition altogether, is developed which can treat the disease. The patentee cannot of course do anything to stop the exploitation of the other drug. Price pressure will then be put upon the first patented drug because there is now a substitute product, despite the existence of the patent. The “monopoly” effects of a patent therefore can vary greatly.

In keeping with the economist’s lack of interest in the distribution of wealth within a society, the fact that consumers will have to pay more to a monopolist than to the producer of the same product in a competitive market is not of itself a matter for concern. A shift in the distribution of wealth from consumers to producers is not regarded as a social cost by economists, although it certainly may be so regarded by participants in the political process of a nation. There is another cost engendered by monopolies which is of concern to economists, though, namely, the “dead-weight loss,” which can be technically demonstrated with graphs and formulas and the whole intellectual paraphernalia of the professional economist or more simply explained as, “the welfare loss suffered by those who stop buying the product [which] is not off-set by any gain to the seller.”[37] In other words, monopolies in principle create a net social loss and a misallocation of resources, and so, unless there is a compelling reason to tolerate them they should not, in the view of economists, let alone anyone else, be tolerated. That compelling reason is said to exist, however, in the context of the patent instrument and its incentivecreating function and that is the subject of the next proposition in the loop.

In the meantime, there is more to be said about the meaning and perception of “monopoly.” Patents are rapidly becoming one of the defining characteristics of the market economies of contemporary capitalism and yet their inherent nature as an economic monopoly seems to defy the very ideology of competition which constitutes and drives those market economies. This contradiction may explain why although it is not a matter for contention to say that the patent instrument creates exclusive rights for the patented product or process to be exploited in the market, there is some dispute as to whether or not use of the word “monopoly” is accurate and appropriate in the context of the patent instrument. The word “monopoly” did not generate warm feelings and positive thoughts in the public mind during the Elizabethan era and it does not do so now. In the construction of an ideology, that matters, and there is, accordingly, some effort made to remove the word “monopoly” from patent speech. Nothing of substance needs to change. It’s all in the perception. As Kastriner, the Chief Patent Counsel for Union Carbide Industrial Gases, Inc., has pointed out, “[o]nce the public misperception of patents changed from anti-competitive “monopolies” to useful stimulants for creativity and economic growth the patent system was revived to an extent ....”[38]

The argument sometimes proceeds by attempting to collapse any conceptual market structure distinction between the patent and other forms of property, stating the proposition that, after all, all property is a form of monopoly and all property owners have a monopoly in their private property.[39] Consider, for example, the rhetorical flourish of this question, “[t]he right to our house or our automobile is simply a right to keep anyone else from entering or using it without our consent and is that not a monopoly?”[40] If you’re not an economist, it’s kind of hard to fight that. It’s certainly possible though, even at the same rhetorical level. Just say something like, “suppose you have a right to stop anyone else from making, selling and importing houses or automobiles. Is that not a monopoly?”

The slightly more serious argument is also sometimes made that the term “monopoly” is only properly used where persons are restrained from exploiting what they already had before, that is, where the subject matter of the monopoly was already in the public domain before the patent was granted so that the public has, through the grant of the monopoly, lost something it had. See, for example, this judicial statement in United States v Dubilier Condenser Corp [1933] USSC 85; (1932) 289 US 178:

Though often so characterised, a patent is not, accurately speaking, a monopoly ... [A] monopoly takes something from the people. An inventor deprives the public of nothing which it enjoyed before his discovery, but gives something of value to the community by adding to the sum of human knowledge.[41]

The argument, which has nothing to do with economics and everything to do with constructing a viewpoint, bases the appropriateness of the use of the word “monopoly” on the status of the monopolised subject matter prior to the creation of the monopoly.[42] When exclusive rights for the commercial exploitation of a product or process are given for a product or process that is entirely new, it’s not a monopoly. It has not deprived the public of anything. Patents, therefore, which are in principle at least granted only to novel and inventive products and processes, cannot rightly be viewed as monopolies according to this line of reasoning. Gertrude Stein should be here. A rose is not a rose is not a rose.

C. The patent provides an incentive both to invent and to invest in invention and innovation by solving the problem of market failure caused by freeriding imitation

The proposition that the patent is a necessary incentive to inventive activity forms the now standard and conventional rationale for government intervention into what would, in the absence of a patents regime, be the free and freely-competitive exploitation of inventive ideas. Put shortly, on this theory, patents exist and need to exist to prevent the market failure which would result from a failure to stop freeriders and legally inhibit the imitation of those inventions at least which are vulnerable to being copied. The free rider is she who does not invent the invention but imitates it and thereby gets the benefit of it without having made the investment which has gone into the inventing. There are both municipal and global free-riders on this theory. The Indian pharmaceutical industry, for example, can charge much less for its drugs, reverse-engineered from the drugs developed by the Swiss patentee, than the Swiss patentee can charge because the Indian industry does not have the sunk costs of research and development to recoup which the Swiss patentee does. It can therefore undermine, saturate and supplant the patentee’s markets.

That inventive ideas must be protected against imitation in order to create an incentive to invent has been integral to patent regimes in Europe since their beginning. Here is a statement from the Preamble of the Venetian Patent Act of 1474:

Now if provision were made for the works and devices discovered by such persons, so that others who see them could not build them and take the inventor’s honor away, more men would then apply their genius, would discover, and would build devices of great utility and benefit to our commonwealth.[43]

The economic theory upon which modern acceptance of the Venetian proposition is based is essentially that of Schumpeter, an immensely influential economist, who argued that in fact perfect competition is not conducive to innovation or technological progress because a fully competitive market is a fully informed market in which an invention would be copied and the benefits of the invention could therefore not be adequately appropriated by the inventor.[44] Invention, therefore, on this theory, actually depends upon the existence of imperfectly competitive market structures because without such structures, brought about by, inter alia, the patent instrument, there would be insufficient appropriability of return and therefore an inadequate incentive to invest in invention. Yes folks, monopoly really is good for us. If we take away the patentees’ monopolies and their excess profits, we’ll all suffer more than we suffer under the actual monopolies because we won’t get the inventions and innovations which we need and undoubtedly benefit from. This all sounds right and in some ways it is right, but there still is more to know and to be said, if we can.

One of the first things to be clear about in investigating the incentive proposition, when one is no longer in fifteenth century Venice, is what the incentive is an incentive for exactly, because incentives to invent and incentives to invest in research and development are not exactly the same thing. That which motivates a person to invent something is not necessarily that which motivates a person to invest money in a process which may lead to an invention and the latter is in fact increasingly clearly what the patent incentive is really about.[45]

Schumpeter’s arguments are all about getting profit-seeking firms to invest in innovation and creating industry structures conducive to such investment. They are not about how to get a scientist into a lonely lab at night. The social returns from industrial research and development are very high and never entirely appropriated by the patent-owner, so that society as a whole benefits from investment in research and development[46] and what is therefore said to be needed and to be provided by the patent system is the social and legal provision of a sufficient incentive to industrial investment in research and development.

In assessing the strength of this argument, it is important at least to bear in mind that the argument is predicated upon a particular kind of national political economy, that is, one in which at least certain kinds of research, development and inventive effort are expected to be conducted by the private sector. This of course in turn assumes a private enterprise economy. The imposition of patents regimes upon nations with command or even mixed economies and strong alternative avenues for research and development, such as publicly-funded universities and research institutions and teaching hospitals, is accordingly somewhat problematic. The patent incentive may simply not be as important or as functional for countries with incentives to invention which are not tied to incentives for private-sector investment. The public in such countries may therefore be suffering the ill effects of having a patents regime without the compensating incentive-creation effects which are used to legitimate that regime.

One response to the incentive problem in patent law, that is, to assessing whether the patents regime really does create an incentive to invent which is sufficient to outweigh the undoubted social costs of increased prices and reduced output that flow from the patent monopoly, is to ask of a patents regime whether patents are only granted to inventions which have been induced by the patents regime itself.[47] If society grants patents for inventions which it would have had anyway, (because other sorts of incentives to invent have been at work), then society endures the social costs of patenting with no corresponding benefit and there is accordingly a net social loss. Take, for example, the issue of granting patents on methods of medical treatment, a matter which has generated controversy in both the United States and Australia in recent years.[48] If patents are granted for such methods and yet, because of the country’s existing medical research infrastructure of university medical faculties, teaching hospitals and a medical profession imbued with the ethos of immediate publication and free dissemination of medical information and scientific discovery, the medical treatment inventions would have been made and made public anyway, then society is made to endure a loss with no compensating gain. The incentive-creating function of the patent instrument will have faltered and failed. This sort of thing should be avoided. Patents regimes should therefore be designed in such a way as to minimise so far as possible that particular avenue of social loss, by granting patents only to those inventions which would not have existed except for the patent incentive. Yet, this is something that must vary from country to country, depending on what sort of alternative incentive schemes are available for any particular area of technology in that particular country, and it is this variation which once again makes the enforced globalisation and standardisation of patent regimes pursuant to the TRIPS Agreement problematic and a potentially destabilising force in world affairs.[49]

One would of course also like to know, in assessing the incentive proposition, whether the proposition is generally empirically true, that is, whether the patent instrument really does function effectively as an incentive to invent or to make the investment in the research and development which leads to invention. The evidence is actually much less conclusive than one might think or hope as to whether patents actually do function consistently and effectively as either an incentive to invent or to invest in invention. As Mokyr, the author of a leading study on the matter, has put it, “[t]he political economy of technological change is only dimly understood.”[50] Enough studies have been done and enough evidence gathered to cast some doubt on the incentive proposition or at least to make it a little unstable. Consider, for instance, the fact that those inventions which are the most radical, ground-breaking and genuinely inventive are apparently particularly unresponsive to specific incentives, “and defy most attempts to relate them to exogenous economic variables.”[51] Yet it is precisely those sorts of inventions which societies want most and would like to provide an incentive to get because it is those inventions which are fundamentally necessary for the subsequent production of cumulative small inventions.[52] Another category of inventions which are not responsive to incentive-creating devices such as patents is, of course, that of accidental discoveries. One does have to be careful about these, though, because sometimes they are made accidentally but in the course of trying to invent something else. They are therefore not outside of the incentive -creating scheme.[53] It has been demonstrated that where broad patent protection is given to an inventive idea, technological development by way of improvement to the idea is inhibited in comparison with the progress that can be made with such improvements when rivalry is allowed.[54]

Mokyr has been able to demonstrate that although historically the patent may have been a useful stimulus to invention, it has also clearly not been a necessary incentive, for many reasons. One such reason involves “imitation” itself, the very reason why patents are said to be a necessary incentive in the first place. Patent protection is said to be required to stop imitation, but imitating an invention can actually be quite difficult, or very difficult or even impossible. In such cases, a “natural” patent is created and the possibility of a legal patent is unimportant. One study, reviewing the economic literature on the matter, in fact concludes that, “imitation costs are the prime determinant of the importance of patents.”[55] Where imitation costs are high, patent protection is not necessary to induce invention. Another such reason is that sufficient profit to make the effort worthwhile can often be made even when inventions are soon imitated.[56] This has been confirmed by other empirical studies which have shown that the patent incentive is functional only to a few industries, including, in particular, the pharmaceutical industry,[57] where not only are research and development costs very high for the development of new products, the cost and difficulty for others of reverse-engineering pharmaceuticals are insignificant and imitation is therefore a live and potent danger. Studies have also shown that on average, the lead-time gained by being first in the market, the know-how involved in working the invention and the sales/ service/marketing aspects of product promotion are more important means of capturing commercial benefits from inventions than are patents.[58] Taylor’s important study in the United Kingdom, for example, has found that for that category of invention which requires for its implementation substantial know-how of a type not revealed in the patent documents or which cannot easily be reverse engineered, “it cannot then be truly argued that the patent system ... has any stimulating impact on invention or implementation of inventions.”[59] This is because those inventions would presumably have been forthcoming anyway and did not require the patent incentive for their production. Further, Taylor’s study found that in areas of very rapid technological advance where the market life of new products is short, the “head start” obtainable by the originator of the inventive idea may be sufficient to deter imitation for long enough to provide a sufficient incentive for the invention.[60] A large Australian study into the economic effects of patents concluded that “the patent incentive is not an important determinant of innovative activity.”[61]

It is not just the questionable empirical backdrop to the incentive proposition which makes one pause before accepting it, though. It is also the very idea of the “free-rider”, an idea which gives the incentive proposition much of its rhetorical driving force. The incentive argument may have only questionable empirical backing, but so what. We all hate cheats and free-loaders, riding on the work and money of others. Our gorge rises.

The idea of the free-rider in patent law is more complicated and problematic, however, than our gorge may know. It is, for one thing, quite important to keep in mind that patent laws are still technically merely positive laws of a territorial nature and there is nothing illegal or piratical about imitating within your own territory an invention patented elsewhere, if it is not patented or patentable in your own territory. This is especially so if no international treaty obligation has been entered into by the particular nation. The criticism leveled at India, for example, on the basis of its imitated pharmaceuticals is, on this view, inappropriate given that India’s domestic patent law does not permit the patenting of pharmaceuticals and India was not, until its recent adherence to the TRIPS Agreement, a signatory to any relevant international patent treaty.[62]

If an Indian company imitates a pharmaceutical patented in the United States, then maybe it can, despite the above argument, plausibly be viewed as a free-rider. But so too can the American company which utilises the traditional knowledge of indigenous peoples to obtain patentable ideas for products derived from naturally occurring plants in the developing world. Take for example, the patent recently granted in the United States on an extract from the Indian turmeric plant, to be used for the purpose of healing wounds. A paste made from these substances and for this purpose has, despite the absence of documentary evidence to “prove” it, been used for many generations in India.[63] It is certainly possible to argue that the American patentee is “free-riding” on that traditional knowledge here just as many other recent American and European patentees are free-riding on the traditional Indian knowledge of the pesticidal properties of the seeds of the Indian neem tree.[64] Maybe the question of who really is a free-rider is all about context and about who is doing the name-calling and maybe our gorge should be more circumspect about what it rises at.

D. Only new, inventive and practical ideas which are disclosed to the public are patented, so no one loses and society gets valuable knowledge that would otherwise not have been disseminated.

In the typical patents regime of an industrialised country, the relevant invention must, to be patentable, be new, ingenious in the sense of involving an “inventive step”, capable of industrial application, and not a discovery, scientific theory or mathematical method.[65] The patent documents, which are made available to the public, must describe and disclose the invention “in a manner which is clear enough and complete enough for the invention to be performed by a person skilled in the art”[66] and they must, in some jurisdictions, also describe the best method known to the applicant of performing the invention.[67]

All of these requirements appear, at least, to be immensely protective of the public and the public interest. The requirements of novelty and inventive step are particularly economically significant in the protection of the public interest on both a national and a global level and certainly, the adverse consequences of loosening up those requirements go right to the heart of the legitimacy of the patents regime:

One possibility where an unnecessary dead weight loss could arise is if patent protection is granted for a non-innovative product or process. In this case society might incur a monopolistic welfare cost without obtaining a new product or process in return. This point alerts us to the fact that tests of novelty and nonobviousness in the patent law fulfill the useful economic function of preventing undeserved monopoly profits. This potential misuse of monopoly rights must be prevented by strict application of the screening criteria in the patent law.[68]

The novelty requirement prohibits the patenting of that which is already in the public domain, so that society does not lose what it already had; the inventive step requirement prevents the patenting of that which would have been invented in the ordinary course anyway. The “industrial applicability” requirement bars the patenting of anything but tangible embodiments of discoveries, so that the discovery itself remains open to the public and to academic use and scrutiny. The compulsory disclosure requirements mean that information which might otherwise have remained locked up in the possession of its creator is made public. As usual, there doesn’t really seem to be a down-side, at least from the welfare economic perspective. How could any reasonable person object?

Well, a reasonable Indian person, for example, might quite reasonably object to the way that the novelty requirement like almost everything else in Western patent law often seems to work to the advantage of the patent-owning classes in the patent owning countries. The novelty requirement, as applied in American patent law, for instance, results in an American patent being able to be taken out, as described above, on a wound-healing salve made from the tumeric plant despite the generations-old traditional and traditionally available Indian knowledge of the wound-healing properties of the plant. Under American patent law, an “invention” will only be deprived of novelty where the relevant information has been contained and made available to the public in a single written document, the very thing which is unlikely to have happened in developing countries. An invention may have been known and used for centuries in another country and yet still be patentable in America so long as the knowledge of the invention never made it into print. Indigenous knowledge can therefore be used by patent-seekers with impunity and without fear of patent novelty requirements.

A reasonable person might also quite reasonably object to the effect of the patent novelty requirement on the traditional norms of a scientific research culture which itself rests on a particular ethos and, indeed, ethic of open publication going back at least to the early seventeenth century.[69] Patent law requires a breach of the scientific norm of disclosure. Through its novelty requirement, patent law imposes a very nearly absolute prohibition on the dissemination of information about an invention for a potentially lengthy period, from the time that the inventive idea is first formulated, through its developmental phases until the filing of the patent documents. If you want a patent, keep quiet about your idea. The publication of research results in an academic journal has been identified as the major risk to obtaining a patent for university research.[70] So, don’t publish, whatever you do.

The Australian case of Anaesthetic Supplies Pty Ltd v Rescare Ltd[71] provides a recent spectacular example of a premature publication of an important medical discovery leading to patent failure. The method of treating obstructive sleep apnea which was the subject of the patent in the case could relieve dangerous, distressing and even fatal symptoms in patients and, by ordinary medical and scientific norms, information about the discovery should have been widely disseminated as soon as possible. Its publication in The Lancet, however, was by patent rules, premature and it invalidated the patent. The norms, values and requirements of medical science and ethics clashed directly with the norms, values and requirements of a patent regime. Observers have written about the effects of patent-related secrecy on research and teaching within universities and within teaching hospitals and those effects are indeed chilling, at least to those with a residual love for those institutions and for the particular human culture which those institutions have so helped to construct.[72]

Even the apparently entirely benign and salutary patenting principle that only “inventions,” and not “discoveries” or “products of nature,” can be patented can have effects which reasonable persons who are committed to the advance of science might reasonably object to. The principle means that discoveries, even the grand gorgeous discoveries of basic research, don’t yield patent profits. Basic research is less likely to yield inventive ideas of a patentable nature than applied research is and as universities become increasingly patent-oriented and increasingly dependent on the income generated by patent licensing, they are unlikely to continue to perceive their primary mission to be one of basic research.[73] The loss to the public of the shift from basic to applied research by its universities may of course be negligible, but then, it may be immeasurable.

There is also an argument to be made that the multi-national seed, chemical and pharmaceutical companies which develop patentable inventions based on products derived from the naturally occurring plants of the developing world’s rainforests benefit from the “discovery” and “product of nature” exclusions. Their various technical strategies to avoid the operation of the principle and get patents on products derived from naturally occurring plants allow them to benefit while the countries in which the plants and their genetic components exist are instructed that raw germplasm is merely a product of nature, “part of the common heritage of mankind, the gift of nature to the present generation”.[74] The corporate patentholders’ use of human birthright discourse here is a kind of ironic counter-pose to the use of that same discourse by countries of the developing world in their more general arguments against the imposition and enforcement of intellectual property regimes. As will be discussed further below, in the Uruguay Round negotiations leading up to the concluded World Trade Organization Agreement of 1994, the developed world’s negotiating stance that intellectual property is a private right to be protected like any other form of property was confronted with the perspective of the developing countries that intellectual property always builds on and transforms what has gone before and has been created by other human beings. It therefore is and ought to be viewed as part of the common heritage of humankind, a public good to be used to promote the economic and social development of all nations.[75] Part of the loopal proposition deals with the public benefit apparently derived from the compulsory release of information about the invention into the public domain which is brought about by the disclosure requirements of patent documents. Empirical investigations into that proposition, however, cast some doubt, on both a municipal and a global level, on the efficacy of this alleged information transfer from private into public domains. The conclusion reached in Mandeville’s large empirical study, was that “[p]atent literature ... is a relatively unimportant source of technological information for Australian industry.”[76] A survey of American engineers revealed that only 5 per cent of those surveyed considered patent information to be of significance as a source of technical information [77] and in a review of the economic literature conducted by the Bureau of Industry Economics, the conclusion was that, “despite the fact that patent documents are open for inspection to the public, empirical evidence does not suggest that patent specifications are much used by industry.”[78] It has been found that in fact industry seems to use patent documents, “more for checking to see whether there is an extant patent or checking to see whether there are infringements going on,” than for acquiring new knowledge.[79] It’s a kind of closed system. Indeed, a loop.

There is quite clear evidence that much vital information about an invention, especially information about how to make the invention work, in fact cannot be gained from the patent documents and that inadequate disclosure of the technical know-how required to produce and work the invention is the main reason for the lack of use by industry of patent documents and the information contained therein.[80] It seems therefore that the undemanding nature of patent disclosure requirements is such that disclosures made in patent documents are not particularly useful to the public and that, in so far as patent legitimacy is dependent upon the disclosure requirements, that legitimacy must be called into question. When full and adequate disclosure of all relevant information about the inventive idea which is the subject of the patent is not in fact required by a patents regime, then once again the patent-owning classes in industrialised countries can dominate and profit and sufficient information to be of much use to the patent-specification reader of the developing world is not in general required by the patent regimes of the developed world. An American advocate of the institution of patents regimes in all countries in fact explicitly argues that one of the reasons why developing countries ought to participate in the international patents regime rather than just read up on and absorb and use the patent specifications of patent applicants in other countries is that “patents do not, standing alone, contain the necessary information.”[81] That same commentator goes on to note that words in patents statutes about disclosing the “best mode of carrying out the invention” in fact do not mean what they seem to say but instead, “are terms of art, whose meaning can only be understood in the context of the patent system”[82] They are, in short, words directed to the support of a particular view of the worth of the patent instrument.

E. Patents are of territorial effect and are created and enforced or not by the laws of sovereign nations in pursuit of their national self-interest

Despite the existence of several international conventions relating to patents, in particular the Paris Convention for the Protection of Industrial Property of 1883, and the administrative involvement of some international organizations such as World Intellectual Property Organisation, patents are of only territorial effect and there is no “international patent.” The institution of a patents regime is a matter for national sovereignty and the particular content and configuration of rules in such a regime is a matter for the laws of each nation state. Within each country, on the principle of national treatment required by the Paris Convention, nationals of other countries are granted the same patent rights as are granted to the country’s own nationals, but what those rights are is a matter for each country, subject to the minimum standards laid down in the Convention, if the country is a signatory to the Convention. Adherence to the Paris Convention and to any of the international patent conventions, is of course, purely voluntary and a matter of individual decision-making for each national state.

The Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement, a part of the World Trade Organization Agreement signed at Marrakesh in April 1994, is in keeping with this pattern of territoriality, sovereignty and voluntary adherence to minimal international norms. The patent provisions in the Agreement set out minimum standards for the granting and enforcement of patents to be incorporated into the national legislation of each signatory nation and the principal of national treatment is again instituted. TRIPS is to be administered by the World Trade Organisation and enforced through that organisation’s dispute settlement body. The incorporation of intellectual property rights into the GATT Agreement, for the first time in the GATT’s history, was necessary to combat discrepancies among national intellectual property regimes which were functioning as, in effect, non-tariff barriers to free trade among nations. Although this incorporation of compulsory patent provisions may, initially at least, benefit some countries more than others and, in particular, benefit industrialised more than developing, technologically deprived countries, adherence to the World Trade Organisation Agreement is of course again voluntary and a decision to be taken by each nation in pursuit of its national self-interest. The aims of the Agreement, namely, the achievement of greater global economic integration and generally higher economic growth consequent upon increased global specialisation, are certainly generally accepted as desirable by most nations.

This pleasing discourse of patent territoriality, voluntarism and growing international cooperation can and should now be pushed aside, however, in order to hear other talk of compulsion and loss of national sovereignty, of winners and losers in bitter international negotiations, of poor countries desperate to attain or retain access to the markets of the developed world being forced to impose, inter alia, patent regimes inimical to their particular economic needs, cultural values and public health requirements,[83] of the TRIPS Agreement being essentially an American instrumental response to its own large and destabilizing trade deficits and its declining international competitiveness. It is clear that the TRIPS Agreement will require relatively little substantive change to the patent regimes of the European Community and the United States because what the Agreement in fact does is to standardise world patent regimes up to the levels of the patent regimes of those highly developed and industrialised countries,[84] countries which themselves only instituted patent regimes when it was appropriate to their stage of industrial development and which have fine-tuned such regimes to their own needs ever since. A Brazilian economist, before the TRIPS Agreement was finalised, referred to “the widespread perception that the US is trying to translate its domestic provisions into international standards”[85] and that perception was indeed accurate. The so-called new “international” standards for national patent regimes are in fact American and European standards and the “standardization” of patent law imposed through the TRIPS mechanism accordingly removes from many of the world’s countries national control over the use and abuse of this significant economic and political instrument.

Throughout the long and bitter negotiations over the proposed TRIPS Agreement during the Uruguay Round, Brazil and India, in particular, argued that GATT’s jurisdiction was limited to tangible goods and that the countries of the developing world should be permitted to determine the existence and nature of domestic intellectual property regimes in keeping with their own social and developmental needs, need which they argued were at least as important as the interests of the intellectual property owners of the developed world.[86] The position, which eventually won the day, however, was that of the United States, as supported by Japan and the European Community, namely, that the GATT was the appropriate forum to seek enforcement of international protection of intellectual property rights[87] and it is clear that the United States, along with Europe and Japan and trans-national corporations, emerged from the TRIPS negotiations as the victors.[88] “The day is yours,” as the French said to the English at Agincourt and the countries of the developing world have little choice under TRIPS but to increase patent protection or suffer actual or threatened retaliatory action through trade sanctions permitted under the World Trade Organisation Agreement.

5. Conclusion

The aim of this article has been to break into the patent loop, that is, to examine critically and “expand around” a set of linked propositions which seem to fulfil a legitimating function for the patent instrument in patent commentary and discussion. The propositions have been found to be value-laden, rhetorical utterances, which occur in a context, for a purpose and with an intended effect. They have been found to be considerably more contentious, at both a theoretical and at an empirical level, than they initially appear.

[*] Senior Lecturer in Law, The University of Sydney.
[1] Unger, R M, The Critical Legal Studies Movement (1986) at 21.
[2] The controversy flows from the fact that so far neither economic theory nor contemporary empirical economic research can give a clear answer to the question of whether or not a patent system actually provides a net societal benefit. Major economic inquiries into the benefits of patents regimes have been commissioned by several governments over the past few decades and the findings have been both surprisingly consistent and surprisingly agnostic. They have generally confirmed the conclusion of Machlup in the United States in the 1950s: If we did not have a patent system it would be irresponsible on the basis of our present knowledge of its economic consequences to recommend instituting one. But since we have had a patent system for a long time, I would be irresponsible on the basis of our present knowledge to recommend abolishing it. Machlup, F, An Economic Review of the Patent System at 80; see also Taylor, C T, and Silberston, Z A, The Economic Impact of the Patent System: A Study of the British Experience (1973) at 37, “[t]he most we can say from a preliminary consideration of the issues is that there can be no general presumption in theory that a patent system of the sort that we have in the United Kingdom is either advantageous or disadvantageous to the economy as a whole.” See also Firestone, O, Economic Implications of Patents (1971) and Industrial Property Advisory Committee, Patents, Innovation and Competition in Australia (1984) Canberra for reports with similar conclusions.
[3] Bureau of Industry Economics, The Economics of Patents, (1994) Occasional Paper 18, Australian Government Publishing Service, Canberra at 11.
[4] Mandeville, T D, Lamberton, D M, Bishop, E J, Economic Effects of the Australian Patent System (1982) Australian Government Publishing Service, Canberra at 213.
[5] Inlow, M, The Patent Grant (1950) at 133.
[6] See comments such as that of Power, a patents lawyer and biochemist, that, “the patent office is not a clearing-house for public ethics”, in Power, P A, “Interaction Between Biotechnology and the Patent System” (1992) AIPJ 214 at 230 or that of Roberts, “[i]ndustry tends to take the view that morality is too important to be left to patent offices and that it is unwise to have a fine moral filter applied by Patent Examiners.” Roberts, T, “The Former Biotech Patents Directive” (1995) Patents World 27. As to who Roberts is, see below n38.
[7] [1980] USSC 119; (1980) 447 US 303.
[8] Federico, F, “Origin and Early History of Patents” (1929) 11 J of the Patent and Trademark Office Soc 299; Robinson, R, (1890) The Law of Patents 6. It has been suggested that one of the reasons for the American revolution was colonial revulsion at the granting of patents and monopolies. See Graham v John Deere Co [1949] USSC 95; (1965) 383 US 1 at 7.
[9] Ramsey, K, “The Historical Background of Patents” (1936) 18 J of the Patent and Trademark Office Soc 6 at 7.
[10] Above n5 at 22.
[11] D’Ewes, S, Journals of all the Parliaments during the Reign of Queen Elizabeth (both of the House of Lords and House of Commons) (1682) at 652, quoted in Inlow, above n5 at 24.
[12] Above n5, at 25.
[13] As for the “nodal points” for communication circuits, see Lyotard, J F, The Postmodern Condition: A Report on Knowledge, (1984) at 15, “[y]oung or old, man or woman, rich or poor, each person is always located at ‘nodal points’ of specific communication circuits, however tiny these may be. Or better, each is always located at a post through which various kinds of messages pass.”
[14] Above n5 at 20.
[15] Mandeville, above n4 at 126.
[16] Inlow, above n5 at 93.
[17] Mandeville, above n4 at 126–127.
[18] See ss13 and 67 of the Patents Act 1990 (Cth).
[19] Patents Act 1990 (Cth), s65.
[20] Article 1, s8, cl 8 of the Constitution of the United States of America.
[21] Mandich, R, “Venetian Patents (1450–1550)” (1948) 30 J of the Patent and Trademark Office Soc 166 at 177.
[22] Gomme, A, Patents of Invention: Origins and Growth of the Patent System in Britain (1946) at 12.
[23] For an account of the TRIPS Agreement, that part of the GATT Agreement which governs intellectual property rights, see below, p26ff.
[24] Mandeville, above n4 at 121.
[25] This statutory provision is quoted in Oddi, S, “Un-Unified Economic Theories of Patents – The Not-Quite-Holy Grail” (1996) 71 Notre Dame LR 267 at 274, n36 and a further reference is made therein to the provision’s quotation in Machlup, above n2 at 22. If you want to dispute the sentiment of a classically written 18th century statement, however, you can do so armed with the classically written statement of another 18th century figure, namely, Thomas Jefferson. Here is his statement: “stable ownership is the gift of social law and is given late in the progress of society. It would be curious then if an idea, the fugitive fermentation of an individual brain could, of natural right, be claimed in exclusive and stable property.” See Jefferson, T, The Portable Thomas Jefferson, Peterson, M D (ed), (1984) at 529–530.
[26] Taylor and Silberston, above n2 at 25.
[27] Oddi, S, “Beyond Obviousness: Invention Protection in the Twenty-First Century” (1989) 38 The American U LR 1097 at 1137–1138.
[28] Mandeville, above n4 at 213.
[29] Braga, C A P, “The Economics of Intellectual Property Rights and the GATT: A View From the South” (1989) Vanderbilt J of Transn’l Law 243 at 253; Berkowitz, Kotowitz “Patent Policy in an Open Economy” (1982) The Canadian J of Econ 1 at 2.
[30] The TRIPS Agreement will be more fully discussed below, under proposition (5).
[31] Letter from Thomas Jefferson to Isaac McPherson (August 1813), quoted in Graham v John Deere Co [1949] USSC 95; (1996) 383 US 1, 8 at n2. I realise that 1813 was not actually in the eighteenth century, but Jefferson was formed as an 18th century Enlightenment man and so I think it’s reasonable to call him one.
[32] Ross, J C, Wasserman, J A, “Trade-related Aspects of Intellectual Property Rights” in The GATT-Uruguay Round A Negotiating History Vol II (1986–1992), Stewart, P (ed) at 2255.
[33] Inlow, above n5 at 60ff.
[34] Armstrong, G, “From the Fetishism of Commodities to the Regulated Market: the Rise and Decline of Property” (1988) 82 Northwestern U LR 79 at 84.
[35] Id at 85.
[36] Reprinted in Jefferson, above n24.
[37] Corones, S, Restrictive Trade Practices Law (1994) at 5.
[38] Kastriner, L G, “The Revival of Confidence in the Patent System” (1991) J of the Patent and Trademark Office Soc 5 at 8. The strong presence in the “academic” literature of patents and patent law of authors who either are, as Kastriner is, strongly professionally and, therefore, financially involved with patent-owning corporations or whose patent research is funded by such corporations or their lobby-groups is a concern. In Rapp, R T, and Rozek, R R, “Benefits and Costs of Intellectual Property Protection in Developing Countries” (1990) 24 J of World Trade 77, for instance, the authors conclude that increased protection of intellectual property rights is a desirable goal for developing countries. This is a supportable though contentious conclusion, but it is relevant and worrying that the research funding for the paper was provided by the Pharmaceutical Manufacturers Association. Tim Roberts, the author of an article stringently critical of attempts to control the grant of patents over the products of biotechnology, above n6, is described in that article as “[t]he author works in industry and is Chairman of the Biotechnology Committee of the Chartered Institute of Patents Agents.” And so on.
[39] Rich, G S, “Are Letters Patent Grants of Monopoly?”(1993) 15 Western New England LR 239 at 251–255.
[40] Id at 254, referring to an earlier remark by Dean Wigmore.
[41] United States v Dubilier Condenser Corp, [1933] USSC 85; 289 US 178 (1932) at 186.
[42] Above n39. Rich is a Circuit Judge on the United States Court of Appeals for the Federal Circuit.
[43] Quoted in Mandich, above n21 at 176.
[44] Above n3 at 5–7; Schumpeter’s work is called seminal in this paper at 6. See also Norman, N R, “Patent Law Revision: Some Economic Considerations” (1984) 12 ABLR 226 at 229.
[45] De Benedetti, F, “An Economic and Political Analysis of Changes in the Patent System” (1983) 5 European Intellectual Property Rev 295 at 295.
[46] Above n3. Here is a nicely compressed account of the whole chain of reasoning, “... the number of inventions increases with research and development expenditure, productivity increases with the number of inventions and economic well-being increases with productivity”: Oddi, above n25 at 282.
[47] For an analysis of the patent-inducement theory, see Oddi, above n25 at 277–281.
[48] See Loughlan, P, “Of Patents and Patients: New Monopolies in Medical Methods” (1995) 6 AIPJ 5; McCoy, T J, “Biomedical Process Patents” (1992) 13 J of Legal Med 501; Burch,G E, “Ethical Considerations in the Patenting of Medical Processes” (1987) 65 Texas LR 1139 at 1143; Loughlan, P, “The Pallin Patent Overturned” (1996) 9 Aust Intell Prop Bull 46.
[49] One might, in wondering about where the TRIPS requirements on domestic patents regimes may lead the relations between the developed and the developing world, do worse than ponder the lead-in words to a newspaper column entitled “Patents and World War III”, which appeared in The Hindu on 2 August 1996, “If wars are about fighting for control over another’s territory, World War III has already begun over patents and other related issues under the WTO.” See The Hindu Online
[50] Mokyr, J, The Lever of Riches: Technological Creativity and Economic Progress (1990) at 261.
[51] Id at 177.
[52] Id at 297. Mokyr distinguishes these two types as macro-inventions and micro-inventions respectively and, at 297, claims that the relationship between the two is “the most fundamental complementarity of the economic history of technological change.”
[53] The glue which makes possible the ubiquitous Post-It note was one such discovery. The nondrying lightly-sticking glue was discovered only in the course of searching for a very sticky, very aggressive glue and was initially rejected as a failed effort.
[54] Merges, R P, Nelson, R R, “The Complex Economics of Patent Scope” (1990) 90 Columbia LR 839.
[55] Above n3 at 24.
[56] Mokyr, above n50 at 177.
[57] Above n3 at 24, which refers to a “converging opinion”, as a result of several empirical studies, that patents are of considerable importance in areas like pharmaceuticals and considerably less important in the major engineering areas.
[58] The studies referred to are by Levin, R C, Klevorick, A K, Nelson, R R, and Winter, S G, “Appropriating the Returns From Industrial Research and Development” (1987) Brookings Papers on Economic Activity at 783.
[59] Taylor and Silberston, above n2 at 26.
[60] Id at 25.
[61] Mandeville, above n4 at 121. See the conclusion at 101 that “excluding drugs, patent protection did not seem essential for the development and introduction of at least three-quarters of the patented innovations studied here.”
[62] May, D K, “Pharmaceutical Crisis in India: Transcending Profits With Human Rights” (1991) 10 Wis Int’l LJ 41 at 41.
[63] The outcry over the patent led the Indian Government in October 1996 to file an action for revocation of the patent at the US Patent and Trade Mark Office in Washington. See Agarwal, A, and Narain, C, “Pirates in the Garden of India” (1996) 152 New Scientist 14.
[64] More than three dozen patents have been granted in Europe and the US to non-Indian patentees over product pesticides derived from the neem tree. Id at 14.
[65] See Patents Act 1977 (UK), s1. There was in the early part of this century a significant international movement to have “pure” scientific discoveries given patent-like property protection. See Silverstein, D, “Patents, Science and Innovation: Historical Linkages and Implications for Global Technological Competitiveness” (1991) 17 Rutgers Computer and Tech LJ 261 at 298–301.
[66] See Patents Act 1990 (Cth) s14.
[67] Id at s40.
[68] Above n3 at 45.
[69] Silverstein, above at 279.
[70] Wood, F Q, “The Commercialisation of University Research in Australia: Issues and Problems” (1992) 28 Comp Educ 293 at 300.
[71] (1994) 50 FCR 1.
[72] Langford, J W, “Secrecy, Partnership and the Ownership of Knowledge in the University” (1991) 6 Intell Prop J 155; Loughlan, P, “Of Patents and Professors: Intellectual Property, Research Workers and Universities” [1996] 6 Eur Intell Prop R 345 at 348–349; Leskovac, H, “Ties that Bind: Conflicts of Interest in University-Industry Links” (1984) U Cal Davis LR 895 at 904; Id at 305. See also, Loughlan, above n48 at 13.
[73] Loughlan, above n72 at 349; Rahm, D, Bazeman, B and Crow, M, “Domestic Technology Transfer and Competitiveness: An Empirical Assessment of Roles of University and Governmental R&D Laboratories” (1988) 48 Pub Admin R 969.
[74] Kadidal, S, “Plants, Poverty, and Pharmaceutical Patents” (1993) 103 Yale LJ 222 at 228.
[75] Above, n32 at 2255.
[76] Mandeville, above n4 at 203.
[77] Shuchman, H, Information Transfer in Engineering, The Futures Group, Washington DC, (1981).
[78] Above, n3 at 31. See also de Benedetti, above n45 at 296; Taylor, above n2.
[79] Above, n3 at 31–32.
[80] Id at 31.
[81] Kitch, E W, “The Patent Policy of Developing Countries” (1994) 13 UCLA PBLJ 166 at 171.
[82] Id at 172.
[83] A recent report of UNCTAD (United Nations Conference On Trade and Development), released on 6 March 1997, on the long-term costs and benefits stemming from the TRIPS Agreement, concluded that the negative effects of the agreement would be most pronounced in “those nations in which technological development is rudimentary.” Bangladesh, for example. An inquiry into the effects on social welfare arising from the increased patent protection for pharmaceuticals required by TRIPS concludes that such protection will result in a net social loss, calculated on a global basis, wherein “welfare losses to individual countries outweigh the gains to pharmaceutical producers.” See Subramanian, R, “Putting Some Numbers on the TRIPS Pharmaceutical Debate” (1995) 10 Int’l J of Tech Management 252 at 263.
[84] Barry, R S W, “The Effect of GATT and TRIPS on UK Patent Law” (1996) Patent World 13 at 14.
[85] Braga, above n29 at 252.
[86] Above n32 at 2268 –2271.
[87] Id at 2263. In considering the line-up of countries on different sides in the GATT negotiations over intellectual property rights, it is worth keeping in mind the results of a United Nations study on technology in developing countries which found that, in developing countries, on average, 84 per cent of patents taken out are held by nationals of the United States and Europe and only 1 per cent of patents are held by the nationals of their own country. See UNCTAD Secretariat, The Role of the Patent System in the Transfer of Technology to Developing Countries, UN Doc No TD/B/AC 11/19 (1974).
[88] Doane, M, “TRIPS and International Intellectual Property Protection in an Age of Advancing Technology” (1994) 9 Am U J Int’l L and Pol’y 465 at 494; See also Braga, above 29 at 252.

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