U N IV E R S I TY O F K E NT AT CANT E R B U RY

KENT LAW SCHOOL

INTELLECTUAL PROPERTY LAW

(LW 556)

DISSERTATION

“Innovation and the patent system. Can the current, overly

stringent patent system still be an incentive for innovation?”

Word Count: 5000 Words

Student Name: Antonios Pantazis (02040726)

Seminar Leader/Supervisor: Mr. Alan Story
Seminar Group: #4

March 2006
Antonios Pantazis Intellectual Property Law Dissertation

Abstract

Innovations benefit consumers through the development of new and improved

goods, processes and services. If one observes all the technological breakthroughs around
us, will understand better, the importance of innovation in the life we lead. Undoubtedly,
Intellectual Property Rights and more specifically, the Patent System, foster innovation
even further. However the fact that patents actually amount to temporary monopolies on
very useful inventions, requires careful handling. The number of patent applications filed
in the world’s three leading Patent Offices, the Patents and Trademarks Office of the
United States, the Japanese and the European Patent Offices, has increased by more than
40% between 1992 and 2002. Therefore, the main question that this dissertation will try
to address will be, whether this abundance of patents rather than lubricating the gears of
innovation, is instead clogging them. New fashions suggest that patents are more
frequently used for huge economic profits. This arrives as a shock to the traditional
thinking that the major justification for patents, lies in the fact that they provide an
incentive for innovation. Whether innovation is being liquidated for bigger more
profitable markets, we will attempt to clarify through this dissertation. Moreover, the
potential deficiencies of the monopolistic behaviour that the patent system suggests will
be examined. Furthermore, an analysis of the alternatives to the patent system will
conclude this dissertation.

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Antonios Pantazis Intellectual Property Law Dissertation

CONTENTS

1. Abstract……………………………………………………...page 2.

2. Contents……………………………………………………..page 3.

3. Introduction………………………………………………….page 4.

4. The case for patents………………………………………….page 7.

5. Patents’ use today; a stimulus for innovation or not...……….page 9.

6. Innovation without a patent system?..…………….………….page 18.

7. Conclusion...………………………………………………….page 20.

8. Bibliography………………………………………………….page 23.

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Antonios Pantazis Intellectual Property Law Dissertation

1 Introduction.

The patent system has experienced a remarkable increase in the past decade. As
statistics suggest, more than 850,000 patent applications were filed in USA, Japan and
Europe in 2002, compared to only 600,000 in 1992 1. These figures independently of the
motives that the patent system is said to promote, clearly suggest that nowadays patents
have a constantly growing importance to global economy. Since patents even in their
simplest sense are a temporary monopoly to the use of an invention, both the private and
the public sector are frequently using patents to protect their inventions. This is
traditionally based on the view that patents in their turn will foster investment in the
innovation area and help in the dissemination of knowledge. The first English patent for a
new invention is thought to be Aconicio’s Patent for a grinding machine granted in 1565
by the Crown2. Throughout history many arguments have been hired to support the
existence of the patent system. Without patent rights competitors would immediately
copy inventions and the undertaker with the lowest costs would claim the financial
reward, and that by its turn would diminish any incentives to invent3.
However after many controversies, three broad justifications used for the
development of the patent system have survived as the ones being closest to the truth.
The first is more of a moral (being about natural justice) rather than an economic
justification and thus, not of primary concern to this dissertation. It argues about the
patent system offering justice to the inventor. According to this theory, patents reward
their inventors based on the principle that every person must have a right to the product
of her brain, and, therefore, others should be prevented from ‘free riding’ on her
invention. However even supporters of the patent system admit that these arguments are
too minor to make the case, since justice would probably require all the inventors that
came up with the same invention to be rewarded for their labour and not the first one to
file his invention with the UK Patent Office, contrary, perhaps surprisingly, to the USA

1
Patents and Innovation: “Trends and Policy Challenges”, Organisation for Economic Co-operation and
Development (OECD), 2004 Report, page 7.
2
Davis J., “Intellectual Property Law”, Core Text Series, Second edition, Oxford University Press, New
York, 2005, page 25.
3
http://www.eco.utexas.edu/Homepages/Faculty/Norman/long/DII.html , accessed on 28 February 2006.

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Antonios Pantazis Intellectual Property Law Dissertation

where the patent protection goes to the first to invent 4. That is to say that these arguments
collapse in these case of ‘simultaneous inventions’ which happen more or less at the same
time, but from independent inventors5. In these instances, the fact of who will get the
patent is clearly an issue of luck, preparation, and a matter of who is better connected
with the Patent Office. There are also further arguments saying that if the sole purpose of
the patent system was to reward inventors then potentially the protection period would be
even longer, like it is the case with copyrights6 (life of the author plus 70 years).
Nonetheless, as it has already been mentioned these arguments are not of great
interest to this dissertation, as one could say that patents are not granted for a social
purpose anymore. In the past not necessarily all inventions were patented but only those
capable of benefiting the society as evidenced in the British Patent Law of 16247:
declaring patents that ’were mischievious to the State, by raising prices commodities at
home, or hurt of trade, or generally inconvenient’, as invalid. However, closer to what we
are examining here can be the second and third justifications that are clearly of economic
nature. These suggest that a strong and efficient patent system can encourage innovation,
and that also, pursuant to s14(3)8, which requires the specification of a patent application
to disclose the invention in a clear and complete manner for a person skilled in the art,
there are hopes that through patents, knowledge will be wider disseminated and grasped
from others, who will invent further or compete. This latter case is said to be the
exchange of the inventor to the monopoly he is being given9. Judging also from the
insistence of the Courts, as shown in the case of “Asahi”10, that all (valid) patent
applications should contain an ‘enabling disclosure’11 that will assist the reader of the

4
Cornish W. and Llewelyn, D., “Intellectual Property: Patents, Copyright, Trademarks and Allied Rights”,
Fifth edition, Sweet and Maxwell, London, 2003, page 130.
5
Davis J., “Intellectual Property Law”, Core Text Series, Second edition, Oxford University Press, New
York, 2005, page 25.
6
Davis J., “Intellectual Property Law”, Core Text Series, Second edition, Oxford University Press, New
York, 2005, page 26.
7
Statute of Monopolies 1624, 21 Jac. 1, c.3, s.6, “Intellectual Property Today: Of Myths and Paradoxes”,
Vaver, D. (1990)69 Can. Bar Rev 98., page C 117.
8
Patents Act 1977, section 14(3), Christie A. and Gare S., “Blackstone’s Statutes on Intellectual Property “,
7th edition, Oxford University Press, New York, 2004, page 431.
9
Davis J., “Intellectual Property Law”, Core Text Series, Second edition, Oxford University Press, New
York, 2005, page 26.
10
Asahi Kasei Kogyo’s Application. [1991] R.P.C 485.
11
Cornish W. and Llewelyn, D., “Intellectual Property: Patents, Copyright, Trademarks and Allied
Rights”, Fifth edition, Sweet and Maxwell, London, 2003, page 151.

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Antonios Pantazis Intellectual Property Law Dissertation

application to reproduce the invention, one could potentially say that this is by far the
most convincing argument in supporting the patent system.

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Antonios Pantazis Intellectual Property Law Dissertation

2 The case for patents.

However the third argument of whether patents are promoting innovation, which
is the primary aim of this dissertation, has been hotly debated and the results are still not
pointing at a clear direction. This principle evolved as early as 1793 by Jeremy Bentham,
the father of utilitarianism, who was a strong supporter and articulator of the incentive
thesis of intellectual property. This rationale though heavily challenged, remains the most
powerful argument in favour of the patent system, even today. Bentham wrote in 1793
that “Without the assistance of the laws, the inventor would almost always be driven out
of the market by his rival who, finding himself, without any expense, in possession of a
discovery... would be able to deprive him of all his deserved advantages, by selling at a
lower price…”12. This is more or less taken to mean that even if the inventor comes up
with a marketable innovation, he will need a monetary incentive (a patent) in order to
carry on with the marketing of his idea. This is needed as even after the conception of the
innovation a sizeable capital investment will be needed to develop, manufacture, market
and sell the end product of the invention 13. Today, it is beyond doubt that patents are used
increasingly day by day, effecting but also sustaining (in their nature) many changes.
Even the patent system itself is constantly being modified so to be capable of
accommodating this increasing need for new patents. Patents on genetic material,
business methods and software, are now granted on many Patent Offices around the
world, being potentially enough to say that they are already recognised in the US Patents
and Trademarks Office14 (the biggest one currently in the world). These patents are now
granted on grounds that were not recognisable by older patent regimes (some still not
recognised in the UK)15. This has subsequently led to an enhanced ability of the patent
holders to enforce their rights even more strictly that they used to. Since the Federal
Circuit Court of Appeals (USA)16 declared in 1998 that technology-based business

12
http://aoi.cordis.lu/article.cfm?article=1503, accessed on February 28, 2006
13
http://www.patenthawk.com/blog/archives/2005/04/patent_economic_2.html, accessed on 28 February
2006.
14
Patents and Innovation: “Trends and Policy Challenges”, Organisation for Economic Co-operation and
Development (OECD), 2004 Report, page 8.
15
Patents Act 1977, section 1(2), Christie A. and Gare S., “Blackstone’s Statutes on Intellectual Property “,
7th edition, Oxford University Press, New York, 2004, page 426.
16
Business methods still not recognisable in the UK, section1(2)(c) Patents Act 1977.

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Antonios Pantazis Intellectual Property Law Dissertation

methods, previously considered too abstract to be patentable, are in fact eligible to be

patented, thousands of e-commerce companies have submitted their patent applications. It
is worth mentioning, that patents in this field are being awarded on almost everything;
from data processing systems to methods of creating custom CDs online 17. Undoubtedly
this has not happened without a reason, and many people suggest that it is only because
of these policy changes, that the patent system was able to cope with changes in the
innovation system, as well to attract bigger private sector capitals in the Research and
Development area. Despite all these however, many commentators suggest that today’s
rights are too strict and make even the sharing of knowledge very expensive18

17
http://webbusiness.cio.com/archive/021400_patent_content.html?printversion=yes, 20 January 2006.
18
“The Economist Magazine”, A survey for Patents and Technology, October 22nd, 2005, “A Market for
Ideas”, issue, October 22nd – 28th 2005, page 23.

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Antonios Pantazis Intellectual Property Law Dissertation

3 Patents’ use today, a stimulus for innovation or not?

However and clearly at odds with the past, nowadays, almost every new gadget
can be patented. Today the Patent Office will apparently patent anything regardless of its
respective novelty and usefulness in its industry. Examples of non-novel ideas that were
recently patented can be a patent on swinging on a swing; the peanut butter and jelly
sandwich, and a method of transmitting energy by poking a hole in another dimension 19!
Therefore, the question we need to ask at this point is; do all these really happen because
the invention is a real invention and the inventor was pushed further in his job with the
patent system being his incentive, or these things happen because of other reasons,
simpler and clearly financial ones. Many argue that this tension of ‘over-patenting’ is
primarily noticed because of the ingenuity of the patent attorney in drafting the Patent
Application and not because of the inventive step that the inventor took in coming up
with the idea20This has subsequently led to having many invalid patents. In addition, the
paradox in these cases is that there is no litigation being brought against these (invalid)
patents. This can be understood by the fact that the challenge costs and the uncertainties
involved in these kinds of actions are rather high. So by not challenging this phenomenon
we end up with an increase in the licensing of these invalid patents since the licence
royalty per unit costs can be much lower that the aforementioned litigation costs! 21 This
seems logical though, since the litigation costs in these cases pose as a serious business
decision and have little to do with legal doctrines. Licensing of invalid patents is also
encouraged by the recent phenomenon of threatening 22 the initiation of costly
infringement actions by the patent holder. Such a threat will either enforce the other party
to pay the patent holder royalty fees, as the alleged infringer would most certainly want to
avoid the very expensive and time consuming litigation, or will succeed in getting the
patent holder a Court injunction that will subsequently stop the improper use of the
patent. Such an example could be that of Jeff Bezos suing Barnesandnoble.com for
19
Perfectly Competitive Innovation, (2003) Michele Boldrin; David K Levine, page 6.
20
“Intellectual Property Today: Of Myths and Paradoxes”, Vaver, D. (1990)69 Can. Bar Rev 98., page C
120.
21
“Intellectual Property Today: Of Myths and Paradoxes”, Vaver, D. (1990)69 Can. Bar Rev 98., page C
121.
22
Though there is a provision providing remedies for threats, section 70, 1977 Patents Act, it only covers
groundless threats, and not threats that are based on legally granted but otherwise invalid patents.

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Antonios Pantazis Intellectual Property Law Dissertation

infringing on ‘Amazon's 1-Click’ ordering system patent23. Amazon's patent, titled

"Method for System for Placing a Purchase Order Via a Communications Network," is so
broad, that it is feared that if the courts continue to support it, the giant ‘e-tailer’
(Amazon) could make a mint in licensing fees from other undertakers, also keen on
getting their own customers quickly in and out the door. Therefore many believe that
Bezos, by securing an injunction against B&N's use of its own one-click ordering system,
Amazon climbed yet another rung on the e-commerce ladder, and Bezos himself made his
most brilliant competitive move to date24. At this point it is important to understand that
even if someone wanted to challenge an invalid patent and even if we suppose that he
were successful; in the aftermath he would not be the only one able to make the product,
but instead everyone, including its competitors, would be able to do this. However, the
challenger would have been the only one that borne the litigation costs 25. This poses as
another strong disincentive against challenging an invalid patent as well as being another
form of ‘free riding’. This is a quite straightforward example that patents are not always
there to foster innovation, but instead can be used even at the detriment of innovation
(licensing of invalid patents) so to confer huge financial benefits to their holders.
It is also believed that patents with the security and the monopoly they offer to
their holder, lower in a sense the psychological barriers to innovation, thus making it
easier for people to innovate. People do not have to worry any more if all their time and
money spent on Research and Development will pay off or whether the risks taken will
result in a profitable product, as Kenneth Arrow rightly observed in the 1960s26. However,
if one examines closer the practical operation of the patent system, will notice that much
of this positive impact is diminished27. This is because, much of the protection that a
patent offers to its holder greatly depends on the language used by the patent attorney in
couching the claims of the invention in the specification of the patent application. This
renders crucial for all competitors to examine this part for any potential weaknesses.
However, recently, it is being noticed that even this process is effectively ruined by new
23
http://webbusiness.cio.com/archive/021400_patent_content.html?printversion=yes, 20 January 2006.
24
Ibid.
25
“Intellectual Property Today: Of Myths and Paradoxes”, Vaver, D. (1990)69 Can. Bar Rev 98, page
C121.
26
Creation Myths: Does innovation require intellectual property rights? (2003) Douglas Clement, page 3.
27
Cornish W. and Llewelyn, D., “Intellectual Property: Patents, Copyright, Trademarks and Allied
Rights”, Fifth edition, Sweet and Maxwell, London, 2003, page 134.

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Antonios Pantazis Intellectual Property Law Dissertation

drafting methods, which achieve patent claims to disclose as little useful information as
possible28. Even if an intelligent member of the public reads the specification, she will
most probably not comprehend it as the language is addressed only to the relevant
industry that the patent refers to. This is also further sustained by the fact that here is no
such requirement that the patent specification should be comprehended by everyone (only
to the person skilled in the art. This poses a serious attack to the earlier mentioned
argument (in favour of the patent system) that patents are there to function as virtual
pools of publicly available knowledge.
If however, any deficiencies are indeed located, then the competitor could spend a
great deal of time and money to ‘invent around’ 29 the earlier specification, therefore, find
another way of doing the exact same thing, which the draftsman of the first specification
simply did not anticipate and thus did not cover in his specification. Though this strategy
is known as an irrational way to allocate scarce resources such as money and time for
research, it must not be overlooked, as it is frequently dictated by the market and
competition needs. I believe that this is another way of acquiring a perfectly valid patent
on a similar or even the same invention already patented, with the sole incentive being
the big money returns, as in these cases clearly no inventive step was taken by the
inventor. The only thing that was procured was not innovation but rather, an expensive
‘patent race’30 to the Patent Office, in the view of big financial returns. Even from a
different point of view, if the language used in a patent is vague and general so to cover
all contingencies, this could subsequently lead to real patents being refused patent
protection as lacking inventiveness. This makes the distinction between making an
invention and succeeding in innovation crucial31. This is understood by the fact that many
inventions that are not in fact real ones, thus offering no further innovation in their
respective field, may be granted patent protection, whereas real inventions which are
really innovative in their field, may be refused reward and subsequent protection, not
because the earlier invention is novel, but because the draftsman of the earlier patent
28
Intellectual Property Today: Of Myths and Paradoxes”, Vaver, D. (1990)69 Can. Bar Rev 98., page C
123.
29
Cornish W. and Llewelyn, D., “Intellectual Property: Patents, Copyright, Trademarks and Allied
Rights”, Fifth edition, Sweet and Maxwell, London, 2003, page 134.
30
Creation Myths: Does innovation require intellectual property rights? (2003) Douglas Clement, page 13.
31
Cornish W. and Llewelyn, D., “Intellectual Property: Patents, Copyright, Trademarks and Allied
Rights”, Fifth edition, Sweet and Maxwell, London, 2003, page 133.

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Antonios Pantazis Intellectual Property Law Dissertation

application is ingenious. This means that a real invention will never reach the public,
therefore, will never succeed in innovation in its respective field. This demonstrates the
huge role of patents in procuring big returns for their holders, rather than fostering
innovation. This should not surprise us as almost three-quarters of the value of the
publicly traded companies in USA comes from intangible assets, which are thought as the
raw materials of intellectual property32. As a confirmation, Alan Greenspan, the chairman
of the America’s Federal Reserve admits that “The economic product of the United
States, has become predominately conceptual”33.
However, unfortunately even if an invention is a real innovative breakthrough
and, therefore, was rightly granted patent protection, this fact under the current market
tendencies, will not necessarily mean that further innovation in the field will be procured.
This means that we must not omit the fact that many recent significant inventions were
only put to circulation, long after they had been discovered 34. This could be based on the
ill reasoned motives of greater profits, as the patent holder may wish to wait (by
upholding supplies) until market prices grow to a point where the price that the patent
holder will charge, will cover all the estimated demand and guarantee the biggest possible
returns to him. This is better understood by the fact that in all patent instances the
inventor is the sole supplier of the new good, service, or process 35, thus having a
temporary monopoly. In a sense, everybody loves to be a monopolist, and as quite
resoundingly Michele Boldrin and David K. Levine have argued, patents serve only to
reinforce monopoly control and not procure innovation 36. But, even if there are genuine
reasons for delaying production, like unpredictable time to arrive to a viable product, or
high costs in persuading distributors to participate, or in setting up new plants; only
because of the fact that the invention is patented, innovation in the field is nevertheless
hindered. Patents may be said that they discourage in this way even the slightest form of
innovation which is ‘follow on’ innovation37. Furthermore, patents may not even be used
32
“The Economist Magazine”, A survey for Patents and Technology, October 22nd, 2005, “A Market for
Ideas”, issue, October 22nd – 28th 2005, page 3.
33
Ibid.
34
i.e. long lasting razor blades, Cornish W. and Llewelyn, D., “Intellectual Property: Patents, Copyright,
Trademarks and Allied Rights”, Fifth edition, Sweet and Maxwell, London, 2003, page 133.
35
Rent Seeking and Innovation (2003) Michele Boldrin; David K Levine, page 2.
36
Creation Myths: Does innovation require intellectual property rights? (2003) Douglas Clement, page 2.
37
“The Economist Magazine”, A survey for Patents and Technology, October 22nd, 2005, “A Market for
Ideas”, issue, October 22nd – 28th 2005, page 23.

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Antonios Pantazis Intellectual Property Law Dissertation

in the field of innovation, but rather be hired by big firms in the course of creating a
‘wall’ of patents around anything that even slightly resembles their product (of course
already patented), so to prevent others from entering the same field of their product. This
tactic is known as ‘defensive patenting’38. I think that it is needless to mention that these
efforts, not only they do not procure innovation, but instead they stifle it, especially the
innovation coming from small or even middle-sized companies. Many also suggest that
the role of the patent system in procuring innovation is constantly changing 39. Many do
not see any more patents as a tool enabling the transfer of knowledge and fostering
innovation. This is taken to mean, that patents are changing in order to create a market of
their own, providing, thus liquidity for innovation and not fostering innovation40. These
theories have already started being confirmed by voracious ventures like the company of
Mr. Nathan Myhrvold, called ‘Intellectual Ventures’41. The business purpose of this
corporation is totally different to what we are familiar with. Its purpose is to finance
inventors so to keep them inventing and subsequently acquire patents upon these
inventions, with the ultimate scope being of course to licence those innovations to the
world or alternatively pursue their infringers. As Myhrvold himself says, this venture is
for the time being an “experiment” being itself a cross “between a venture capital fund,
a law firm and a Research and Development laboratory…”42
Even if however, a patent is perfectly valid and represents indeed an innovative
and novel step in its field, I do not think that this on its own is sufficient to render the
whole patent system as one that is protecting the inventors, and stands as an incentive for
them (the inventors) to innovate even further. If we add to this that nowadays we do not
have only one general category of inventors, we get an indication that the inventors of a
patent might not necessarily be the ones reaping off the royalty fees of their patented
inventions43. Let us first consider the fact that in an estimated 90% of granted patents the

38
Creation Myths: Does innovation require intellectual property rights? (2003) Douglas Clement, page 13.
39
The Economist Magazine”, A survey for Patents and Technology, October 22nd, 2005, “A Market for
Ideas”, issue, October 22nd – 28th 2005, page 23.
40
The Economist Magazine”, A survey for Patents and Technology, October 22nd, 2005, “A Market for
Ideas”, issue, October 22nd – 28th 2005, page 23.
41
The Economist Magazine”, A survey for Patents and Technology, October 22nd, 2005, “A Market for
Ideas”, issue, October 22nd – 28th 2005, page 12.
42
Ibid.
43
So if they are not benefited from the patent (how could it potentially stimulate them) why should they
pursue it.

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Antonios Pantazis Intellectual Property Law Dissertation

inventor is employed44. That subsequently means that the inventor has been employed to
make the invention, but the resulting patent will belong to his employer. So, on the one
hand we have the employed inventor who will invent because he is required to do so, and
on the other hand we have an independent inventor (a self-employed inventor) who more
often will invent in order to solve a problem of his own rather than to get a patent on his
invention45. Though at first, in both cases we see that the patent system is not playing
such a great role in procuring those two kinds of inventors to innovate, let us consider
these two cases separately.
I think that in the case of employed inventors what is of vital importance to
consider is the British Legislation itself. In strict terms, the 1977 Patents Act can be seen
as a scheme, which recognises that the patent system per se has none or little incentive
upon the actual inventor (employed at least) himself 46. It is more or less a project that
among other things it attempts to give greater financial compensation to employed
inventors. This is an implied recognition that the patent system itself has failed to do so,
and it, therefore, needs to be supplemented by statute law. If this is taken to be true, it
constitutes also a serious strike to the argument in favour of the patent system, that
patents are also needed in promoting greater dissemination of knowledge 47. This is so, as
a potential patent monopoly would be the excellent incentive for the employer of the
inventor to innovate or disclose information but surely not for the inventor himself. The
employed inventor by being a hired entity will in any case be paid. Even if someone
wanted to show good faith and believe that the patent system is still procuring innovation,
then, why would the 1977 Patent Statute try to provide further incentives to innovate to
the employed inventors under sections 39 to 43?48 The fact that these articles try to
promote the position of the employed inventor in the patent field, demonstrates a
weakness of the current patent system to promote innovation, rather than a British
breakthrough in the area, which attempts to increase the protection of the employed
inventors. This is because these principles were already implemented by the Swedish and

44
The patent and legal policy”, Chapter 9 ‘The patent as an incentive to invent’, page C85-A.
45
The patent and legal policy”, Chapter 9 ‘The patent as an incentive to invent’, page C85-B.
46
The patent and legal policy”, Chapter 9 ‘The patent as an incentive to invent’, page C85-C.
47
Ibid.
48
The Patents Act 1977, sections 39 – 43, Christie A. and Gare S., “Blackstone’s Statutes on Intellectual
Property “, 7th edition, Oxford University Press, New York, 2004, page 439.

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Antonios Pantazis Intellectual Property Law Dissertation

West German legal systems many years ago 49. As a matter of fact these principles in
terms of the notions they represent are easily comprehensible and very welcome.
However, through the way they were incorporated into statute they became rather
complex and lost much of their incentive power50. For instance, in order for an employed
inventor to succeed in a compensation action against his employer under section 40(1) of
the PA 197751, he must be in a position to prove that his employer received or is expected
to receive an ‘outstanding benefit’, through the patent on the inventor’s invention. This
poses as a practically impossible burden to establish, as there is no clear definition of
what is meant by the term ‘outstanding benefit’. It certainly does not mean substantive or
just some kind of benefit, it has to be great, outstanding, something that on its own makes
the whole process very difficult. In addition we must also think of the difficulty that an
inventor will face if he tries to gain access to the financial books of the company, as these
are not publicized. And even in the rare instance where a company publicizes its financial
records, it does not do so in an analytical manner for the inventor to find out the exact
benefit accrued solely by his invention52. Something that also needs special attention in
this area is the fact that even if compensation is decided to be granted to the inventor, the
specific amount of the compensation will depend on non-commercial criteria 53 such as
the difficulty of coming up with such an invention, or the peculiarities of it or even
whether the inventor received any outside help in carrying out is job 54. But, even the
actual statute clause determining the exact amount of the compensation given to the
inventor, is itself vague, requiring only that a ‘fair share’ should be given to him, without
at the same time defining what a ‘fair share’ should be55. Nevertheless, the requirement of
section 40(1) of the ‘outstanding benefit’, constitutes an almost impossible burden to
shoulder as it is also evidenced by the case law and the cases of GEC Avionics Ltd’s

49
The patent and legal policy”, Chapter 9 ‘The patent as an incentive to invent’, page C85-C.
50
Ibid.
51
Christie A. and Gare S., “Blackstone’s Statutes on Intellectual Property “, 7th edition, Oxford University
Press, New York, 2004, page 439.
52
In order to calculate whether it is ‘outstanding’ or not.
53
Patents Act 1977, section 41(4)(b).
54
The patent and legal policy”, Chapter 9 ‘The patent as an incentive to invent’, page C85-C.
55
section 41(1) Patents Act 1977, Christie A. and Gare S., “Blackstone’s Statutes on Intellectual Property “,
page 439.

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Patent56; British Steel plc’s Patent57 and Memco-Med Lts’s Patent58. Therefore, it is sadly
observed that the current patent system also supplemented by the Patents Act 1977 still
have very little incentive impact upon employed inventors. This is further supported by
the respective statistical evidence in the area, which shows that eight years after the
implementation of the Patents Act, in 1986, only five claims were lodged with the
Comptroller out of which none was successful59. Even more recently now, in 1998, the
employed inventors seem to have understood the futility of these provisions as absolutely
no claim was lodged this year with the Comptroller 60. So, sadly, it is observed that the
Patents Act 1977 and the patent system as a whole seem not to procure innovation in the
area of employed inventors.
The fact that, as seen above, the patent system is potentially diminishing the
incentives for employed inventors should not necessarily be taken to mean that it fosters
self-employed inventors to innovate. Despite the fact that in these cases we do not
observe an employer exploiting the rights of the inventor, or receiving the returns of the
patent, in due course other difficulties evolve. We must not omit at this point one very
important practical disadvantage of the patent system; it is very expensive and
specialised. The costs of obtaining a patent are very high. Additionally, all expertise
agents helping in the drafting of the Patent Application and in the subsequent grant of the
patent itself, would want to get paid independently of whether the application is
successful or not. The use of such agents, like a patent attorney, or the Patent Office, or
any commercial and industrial advisers, or even the makers of the prototype, is
unavoidable and regrettably very expensive61. Furthermore, even if the patent application
itself is successful (and the patent is granted), all the aforementioned agents will have to
get paid, well before the inventor gets the first monetary returns from his invention. This
could well be a connotation that a patent by itself is not necessarily profitably exploitable,
at least for the near future62. This probably shows that also in the case of the self-
employed inventors, the grant of a patent itself is not the crucial element in procuring
56
GEC Avionics Ltd’s Patent[1992] RPC 107.
57
British Steel plc’s Patent [1992] RPC 117.
58
Memco-Med Ltd’s Patent [1992] RPC 403.
59
The patent and legal policy”, Chapter 9 ‘The patent as an incentive to invent’, page C85-C.
60
Ibid.
61
The patent and legal policy”, Chapter 9 ‘The patent as an incentive to invent’, page C85-A.
62
Ibid.

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Antonios Pantazis Intellectual Property Law Dissertation

innovation. As mentioned above, many people together with some psychologist scholars
believe that when people innovate, in most cases they do so in order to solve a problem of
theirs63. This means that even if an average person is sufficiently educated and acquainted
up to a certain extent with the ‘prior art’64 in a technological field, any potential unsolved
problems in this area will be the ones that will lead him to innovate and not the patent
system per se65. This notion is also more closely related to the public image of an inventor
which is believed to be eccentric and not motivated by financial factors 66. So finally all
these in conjunction with the fact that nowadays the greatest proportion of inventors is
employed67, make us see that perhaps the patent system on itself does not stand as
sufficient incentive for the inventor to innovate. This is further supplemented by
historical records showing that small scale organisations and independent inventors, both
being of outstanding quality, produce a gravely disproportionate number of useful
inventions when compared to their corporate size and their capital value68. That is to say,
that though they are small in financial terms, as they are not the ones granted the majority
of the patents, they nonetheless keep innovating. This is one more example, which
separates the patent system from the corresponding fostering of innovation. It is not
anymore considered as a given that the patent system will necessarily produce the
“optimal degree of investment in research and development and innovation”.69

4 Innovation without a patent system?

63
The patent and legal policy”, Chapter 9 ‘The patent as an incentive to invent’, page C85-B.
64
Part of the requirement of novelty of a patent section 2, 1977 Patents Act.
65
Ibid.
66
Ibid.
67
Mentioned above, on page 14. (90% of inventors being employed).
68
Cornish W. and Llewelyn, D., “Intellectual Property: Patents, Copyright, Trademarks and Allied
Rights”, Fifth edition, Sweet and Maxwell, London, 2003, page 132.
69
Cornish W. and Llewelyn, D., “Intellectual Property: Patents, Copyright, Trademarks and Allied
Rights”, Fifth edition, Sweet and Maxwell, London, 2003, page 132.

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Antonios Pantazis Intellectual Property Law Dissertation

I think that progressively we come to realise that the principle noticed and
challenged by Boldrin, stating that innovation will not happen unless innovators receive
monopoly rights, is beginning to have many flaws70. In their book “Perfectly Competitive
Innovation”, Boldrin and Levine, argue that the patent system is totally unnecessary and
unrelated with the fostering of innovation 71, and as none of them is an empiricist they try
to bring the relevant evidence so to make their point. They more or less argue about a
flourishing innovation system under the auspices of healthy competition, where the
monopoly rights of the patent system play no role. However, one must not think of the
patent role as totally obsolete in procuring innovation, as there are many suggestions that
both competition and patents, when both are kept on a proper balance can foster
innovation72. But even if indeed the patent system is actually somewhere needed in the
whole process of innovation, we cannot help noticing that historically people have been
inventing and innovating without any patent protection73. Many of the most important and
major inventions, like penicillin by Alexander Fleming or the vaccine against Polio by
Dr. Jonas Salk in 1954, were brought around without a patent system The fashion world
at this point should stand as a more contemporary example of a financial sector
innovating without the use of the patent system 74. It is an area that is highly competitive
and staggeringly innovating, with its designs being largely unprotected by the patent
system, but only through the commercial use of Trade Marks. Even the software industry,
though it has always attracted some patent protection in many countries like for instance
the USA, it has traditionally had a very weak patent protection and sustained major
imitation of their products, but it nevertheless remained an industry, which was
consecutively innovating. It is worth mentioning at this point that after some major US
Court decisions in the 1980s which strengthened patent protection for software, the
respective innovation in the field fell sharply75. On the other hand, the fact that
pharmaceutical companies make huge profits from the patents they obtain and they
subsequently invest huge amounts of money in research, may be misleading and not
70
Creation Myths: Does innovation require intellectual property rights? (2003) Douglas Clement, page 7.
71
Creation Myths: Does innovation require intellectual property rights? (2003) Douglas Clement, page 6.
72
To Promote Innovation: “The Proper Balance of Competition and Patent Law and Policy”, a Report by
the Federal Trade Commission, FEDERAL TRADE COMMISSION, October 2003, page 4.
73
Perfectly Competitive Innovation, (2003) Michele Boldrin; David K Levine, page 5.
74
Creation Myths: Does innovation require intellectual property rights? (2003) Douglas Clement, page 6.
75
Creation Myths: Does innovation require intellectual property rights? (2003) Douglas Clement, page 7.

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Antonios Pantazis Intellectual Property Law Dissertation

necessarily a positive sign that patents foster innovation. We must not omit the fact that a
big proportion of the capitals that are used in pharmaceutical research (like the ones used
for the anti AIDS drug, ‘AZT’) are coming from public funds. If this is taken into account
it could potentially show a waste of money coming from patent fees, rather than using
this money in fostering innovation. But, even if the situation is not like this and indeed all
the money deriving from the use of patents is invested in innovation, this can hardly be
the sole incentive for such expensive and speculative projects, as almost all companies
know that only rare and exceptional inventions like the anti-impotence drug Viagra will
fully pay off76. Additionally, even under these circumstances there are theories arguing
that if only the invention was the first to enter the market, the returns would, nonetheless,
still be the same as if they had come under a patent77.

5 Conclusion.

Boldrin and Levine have also successfully argued that the financial securities
industry is also a prime example of a sector making millions, by developing and selling

76
Davis J., “Intellectual Property Law”, Core Text Series, Second edition, Oxford University Press, New
York, 2005, page 26.
77
Ibid.

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Antonios Pantazis Intellectual Property Law Dissertation

complex securities and options, staying at the same time outside the ambit of the patent
system. However, recently, this has begun to change, since patents have expanded to
include ‘business practices’ together with the financial securities. In their book,
“Perfectly Competitive Innovation”, they resent this expansion to a great extent, since
they believe that this policy change was totally contrary to overwhelming evidence by
Tofuno in 1989, demonstrating that the financial industry was positively and enormously
innovating under a competitive environment78. What they further argue and can be of
vital importance to this dissertation is that, though ideas in a pure sense can be shared
freely and be non-rivalrous in consumption, the economic application of these ideas is
totally different and inherently rivalrous79. As an example they say that Calculus is
economically valuable as long as the engineers and the economists comprehend it and
know how to apply it80. As they suggest, if an economic idea is put into a competitive
environment then it can subsequently decrease the huge costs of replication of the
original product (under a patent system) and mitigate, therefore, the difference between
development and replication. In general lines it remains nevertheless very difficult to
assess and measure the effects of a particular patent system, since inventions are not
made and subsequently introduced always at an optimal rate81. Therefore, they accept that
the development of the initial prototype is always far more costly than the production of
all subsequent copies82. However, what they suggest is that competition through
imitation, though it will not generate totally free goods, it will nevertheless lower the
prices considerably (with the prototype always remaining more valuable than all the
others83. I believe that what these two scholars mean and is also central to this
dissertation, is that giving an inventor monopoly rights under a patent system, is not
necessarily the sole way of promoting innovation. The two scholars suggest that through
competition even the inventor can make his fortune, despite the fact that no patent is
involved. This could simply be done, by selling the first copies of his innovation at

78
Perfectly Competitive Innovation, (2003) Michele Boldrin; David K Levine, page 6.
79
Creation Myths: Does innovation require intellectual property rights? (2003) Douglas Clement, page 8.
80
Creation Myths: Does innovation require intellectual property rights? (2003) Douglas Clement, page 8.
81
The Economist Magazine”, A survey for Patents and Technology, October 22nd, 2005, “A Market for
Ideas”, issue, October 22nd – 28th 2005, page 4.
82
Ibid.
83
Creation Myths: Does innovation require intellectual property rights? (2003) Douglas Clement, page 9.

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Antonios Pantazis Intellectual Property Law Dissertation

substantially higher prices84. In due course competition and free copying of the product
will lower these prices and bring a balance, making at the same time the products much
more affordable for the consumers. Even Romer, a critic of Boldrin and Levine, and a
Professor in the University of Rochester 85, admits that the current property rights for
intellectual goods86are potentially too strong. He says that even music file sharing though
hurting the music industry and being at odds with the intellectual property regime, can
nevertheless increase social welfare87. However, he also brings into light potential
deficiencies of this competitive innovation, as since everyone who buys the product will
subsequently be able to copy it, why would people keep buying it at such high prices.
This will deprive the product of being sold at very high prices even in the beginning of its
circulation88. This can be effected if the time between the making of the invention and the
beginning of copying the invention is not as big as Boldrin suggests, but is rather small, a
remark put forward by Solow89. Romer further supports that though what Boldrin and
Levine suggest can be correct in mathematical terms, it is not practicable however,
especially in the pharmaceutical industry90. Finally about the argument of Boldrin and
Levine stating that downstream use should be allowed, Romer responds that even if
something like that is not restricted under a patent or copyright regime, it can still be
excluded, thus restricted, under a contract between the seller and the buyer in a
competitive environment. As a final point, we should bear in mind that though Boldrin
and Levine’s competitive innovation system has many critics and potentially many flaws,
none of them (the critics) has contested their theory, which is believed to be correct. The
only concerns are about the applicability of such a model for innovation, as Lucas of the
University of Chicago91 suggests. It is not a theory that is always applicable. In
concluding, I think that we have come to realise that the patent system is not fostering
innovation so smoothly anymore. Even if a competition model is not necessarily the right
one in procuring innovation, we must realise that as long as one wants to remedy the

84
Creation Myths: Does innovation require intellectual property rights? (2003) Douglas Clement, page 15.
85
Where he was a former teacher of Boldrin.
86
Creation Myths: Does innovation require intellectual property rights? (2003) Douglas Clement, page 14.
87
Ibid.
88
Creation Myths: Does innovation require intellectual property rights? (2003) Douglas Clement, page 15.
89
Creation Myths: Does innovation require intellectual property rights? (2003) Douglas Clement, page 16.
90
Creation Myths: Does innovation require intellectual property rights? (2003) Douglas Clement, page 15.
91
Creation Myths: Does innovation require intellectual property rights? (2003) Douglas Clement, page 16.

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Antonios Pantazis Intellectual Property Law Dissertation

deficiencies of the patent system in the sector of innovation alternatives always exist.
These can be very simple things like the government promoting the technology
education92, to more demanding ventures like prizes. We have to mention here that some
years ago the World Health Organisation together with the World Bank, used monetary
prizes, in order to strengthen the innovation of vaccines that otherwise would not have
been developed or distributed widely enough93. Developments like these undoubtedly
foster the economic interest in the use of prizes as incentives for innovation. Prizes are
pre-set amounts of moneys, posing as a reward for a specific task. Whoever accomplishes
this task first, thus coming up with the invention asked, wins this money. We must not
overlook the fact that historically the prizes that have to do with Research and
Development, “R&D grant prizes”, have led to many well known inventions like the
prize offered in 1714 by the British Government, for the design of an accurate method of
measuring longitude, with the top prize going to John Harrison for his chronometer94.
I hope that the last parts of this dissertation have helped us understand some
weaknesses of the patent system in procuring innovation, and at the same time have
shown us that workable alternatives do exist, raising hope for the remedying of the
aforementioned deficiencies and the strengthening of the innovation sector.

B IB LI O GRAPHY

92
Creation Myths: Does innovation require intellectual property rights? (2003) Douglas Clement, page 14.
93
http://www.druid.dk/conferences/summer2004/papers/ds2004-114.pdf, accesed on 28 February 2006.
94
Ibid.

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Antonios Pantazis Intellectual Property Law Dissertation

Articles:

Creation Myths: Does innovation require intellectual property rights? (2003) Douglas
Clement.

Factor Saving Innovation (2001) Michele Boldrin; David K Levine.

Factor Saving Innovation 105 J. Economic Theory 18-41 (2002) Michele Boldrin; David K Levine.

“How effective are Prizes as incentives to Innovation? Evidence from three 20th Century
contests”, Davis, L., Department of Industrial Economics and Strategy, Copenhagen
Business School, 7 May, 2004.
- Also on: http://www.druid.dk/conferences/summer2004/papers/ds2004-114.pdf,
accessed on 28 February 2006.

Patents and Innovation: “Trends and Policy Challenges”, Organisation for Economic Co-
operation and Development (OECD), 2004 Report.

Perfectly Competitive Innovation, (2003) Michele Boldrin; David K Levine.

“Promoting innovation through patents”, Green Paper on the Community patent and the
patent system in Europe (presented by the Commission).

Rent Seeking and Innovation (2003) Michele Boldrin; David K Levine.

The Case Against Intellectual Property, The Theory of Innovation without Intellectual
Monopoly The Case Against Intellectual Monopoly, Chapter 2 (2003) Michele Boldrin; David K Levine.

“The Economist Magazine”, A survey for Patents and Technology, October 22nd, 2005, “A
Market for Ideas”, issue, October 22nd – 28th 2005.

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Antonios Pantazis Intellectual Property Law Dissertation

“The Guardian Newspaper”, an article by Brown A., “Owning ideas. The boom in the
intellectual property market will not reap rewards for all of us”, Saturday, 19th November
2005, http://www.guardian.co.uk/comment/story/0,3604,1646125,00.html.

The Value of Innovation: The Interaction of Competition, Research & Development and
Intellectual Property OIPRC (2004) Christine Greenhalgh; Mark Rogers.

To Promote Innovation: “The Proper Balance of Competition and Patent Law and
Policy”, a Report by the Federal Trade Commission, FEDERAL TRADE
COMMISSION, October 2003.

Books:

Christie A. and Gare S., “Blackstone’s Statutes on Intellectual Property “, 7th edition,
Oxford University Press, New York, 2004.

Cornish W. and Llewelyn, D., “Intellectual Property: Patents, Copyright, Trademarks

and Allied Rights”, Fifth edition, Sweet and Maxwell, London, 2003.

Davis J., “Intellectual Property Law”, Core Text Series, Second edition, Oxford
University Press, New York, 2005.

Plant A. “Selected economic essays and addresses”, second edition (first published in
1934), Routledge & Keagan Paul, for the Institute of Economic Affairs, London, 1974.

Story A., “Cases and Materials Pack”, edited by Alan Story, Volume 2:

- “Intellectual Property Today: Of Myths and Paradoxes”, Vaver, D. (1990)69 Can.

Bar Rev 98. (pages C116-C126)

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Antonios Pantazis Intellectual Property Law Dissertation

- The patent and legal policy”, Chapter 9 ‘The patent as an incentive to invent’.
(pages C85A-C85F)

Website:

http://webbusiness.cio.com/archive/021400_patent_content.html?printversion=yes,
January 20, 2006.

http://www.druid.dk/conferences/summer2004/papers/ds2004-114.pdf, February 28 2006

http://www.eco.utexas.edu/Homepages/Faculty/Norman/long/DII.html ,February 28 2006

http://www.timesonline.co.uk/article/0,,923-2056103,00.html, February 28, 2006

http://aoi.cordis.lu/article.cfm?article=1503, February 28, 2006

http://www.patenthawk.com/blog/archives/2005/04/patent_economic_2.html,February
28, 2006.

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