Patent theory versus patent law

According to the economic theory of patents, patents are needed so that pioneer firms have time to recoup their sunk costs of research and development. The key element in the economic theory is that pioneer firms have large, hard to recoup, sunk costs. Yet patents are not awarded on the basis of a firm’s sunk costs. Patent law says the subject of a patent should be novel, useful and non-obvious but nowhere does it say the original idea should have required extensive costs of research and development as the economic theory would predict.

The disconnect between the economic theory and what patent law actually requires suggests that patent law could be improved by bringing it into greater conformity with economic theory. Why, for example, should every patent get 20 years of protection regardless of costs? Why not have patents of shorter length for those ideas that required little R&D? (Amazon’s one-click shopping patent comes to mind). I think that such a system is possible and discuss it further in the following paper.

Tabarrok, Alexander. 2002. Patent Theory versus Patent Law (subs. required or email me). Contributions to Economic Analysis & Policy 1 (1), Article 9.