The purpose of the patent system is to "promote the progress of the arts and sciences." In other words, the patent system should promote the development of knowledge. Currently, the U.S. government grants a patent holder a temporary (20 years) monopoly on the patent in exchange for the inventor disclosing to the public how the invention works. The idea is that by granting a temporary monopoly, an inventor has an incentive to invest money in discovering knowledge because the inventor can recoup his investments during the monopoly period. When the monopoly period expires, anyone can make, use, or sell the invention.
Without this monopoly protection, inventors would be reluctant to invest substantial amounts up front. Without it, another party could make and sell the invention after the inventor creates it, but that party would not have to recoup any up front investments. Thus the second party could sell for cheaper, and the inventor would be unable to recoup his investment.
Patents can only be granted on inventions; they cannot be granted on phenomena, principles of nature, and abstract ideas. So mathematical formulas are unpatentable. But the application of a forumla to manufacturing process for making rubber is patentable. The line between an abstract idea and an application of that idea in a particular context can be difficult to draw.
One current issue in patent law is how to treat software patents, and whether software is patentable. Software can often be more like a mathematical formula than an invention. It can be tricky to figure out when software is merely an abstract idea and when it is an application of an idea to solve a problem. Part of this debate over whether software needs patent protection. Progress in the software field moves quickly. By the time a software patent application is processed, the underlying software is often obsolete. Software is more accessible than many other areas of innovation. The investments required to create software are much lower than those to create pharmaceuticals, industrial machines, etc. So patents may not be necessary to encourage innovation because 1) rapid innovation and the first mover advantage obviate the need for a temporary monopoly and 2) inventors do not need to recoup substantial initial investments.
Part of the debate over software patents is over how to best encourage innovation. The patent system applies not just to software, but to chemicals, pharmaceuticals, manufacturing, aerospace engineering, etc. Software inventors do not need to recoup large initial investments. Most other fields, such as the chemical and pharmaceutical industries, are different. Developing chemicals and drugs involves huge up front investments in things like labs, equipment, testing, and regulatory approval. Additionally, the chemical industries are less predictable than software - it is more difficult to invent a new compound for fighting cancer than it is to develop a piece of software that does something new. So the patent system must provide the proper incentive for investment for many industries that are very different.
During the temporary monopoly period, inventors can recoup their investments because others cannot sell the invention. Consequently, the size of the initial investment is dependent upon what the inventor can likely get back during patent term. For software, it seems that protection is often unnecessary to encourage innovation. For pharmaceuticals, however, patent protection is essential to encourage the millions and billions of dollars that companies invest in research and development. Given that much research yields no salable results, companies recoup their investments in many different projects from the few projects that create results.
In a later post, I will discuss how the patent system is relevant to the health care debate. And in another, I will discuss why investment, and not spending, is the driver of economic growth.
19 hours ago