NATIONAL UNIVERSITY OF JURIDICAL SCIENCES

PATENT LAW
WINTER SEMESTER PROJECT

SUBMITTED BY:
SUCHISMITA BARUA
ID: 214124
 THE IMPACT OF PATENT REGIMES ON RESEARCH &
DEVELOPMENT AND INNOVATION
Suchismita Barua

Contents

Introduction...........................................................................................................................................3
The Relationship between Patents and Innovation................................................................................4
DIRECT IMPACT OF THE NATURE OF PATENT REGIMES ON INNOVATION....................4
Strong Patent Regimes and Innovation..........................................................................................4
Weak/No Patent Regime and Innovation.......................................................................................5
THE UTILITY OF UTILITY MODEL/SECOND-TIER INVENTION ON INNOVATION AND
R&D..................................................................................................................................................6
What are utility models and how are they different from a traditional patent regime system?......6
The Impact of Utility Model of IPR Protection on Innovation...........................................................7
The problem of ‘Evergreening of Patents’?...................................................................................8
VARIOUS ENDEAVOURS TO PROMOTE INNOVATION..........................................................9
The Bayh-Dole Act, 1980n (United States of America)..................................................................9
The Utilisation of Public Funded Intellectual Property Bill, 2008 (India).....................................9
National Innovations Act, 2008.....................................................................................................9
Conclusion...........................................................................................................................................10
 Introduction

Pondering on the question of whether we need a patent system at all, a vital question that arises is
that would we still have the luxury of the many inventions we enjoy today without a system
protecting and incentivising such innovations. Would Alexander Graham Bell still invent the
telephone1 or Thomas Edison create the incandescent light bulb2, had there been no patent system
protecting their invention and incentivising them for their creations. It is really difficult to say what
is the driving force behind an inventor creating an invention, is it just for the sake of greater good
and the need to solve a problem or is it just expectation of gaining profits for owning such
inventions3, or both. One, therefore, starts questioning the relationship of patents and innovation;
i.e. whether we have a patent system because we have inventions or the other way around that is
there are innovations because of a patent system. The former argument is mainly from the
perspective of protection of innovation and the latter from the perspective of incentivisation for
innovation.

The general idea or perspective regarding patents is that they ‘foster ex ante innovation, i.e. they
induce people to invent because of the prospect of profiting from those inventions’ 4. However,
authors Arora, Ceccagnoli and Cohen, in their paper, R&D and Patent Premium5, argue that such a
case of positive relationship between patents and innovation is not a very straightforward
proposition. Their argument mostly draws from the various economic theories by several
economists6. It is argued by such economists that sometimes gains from monopoly can be offset by
the costs of disclosure, or that the effect of ‘stronger patents’ is not very obvious in regard to
innovation given the indication that not only the inventor’s own patent is strong but also that of its

1
Working with electrician Thomas Watson, Alexander Graham Bell created an early model of a telephone in June 1875
and continued to perfect it. He applied for the patent on Feb 14, 1876. On March 7, he was granted patent 174,465 for
the telephone which he described as “The method of, and apparatus for, transmitting vocal or other sounds
telegraphically, as herein described, by causing electrical undulations, similar in form to the vibrations of the air
accompanying the said vocal or other sounds, substantially as set forth”. See On This Day: Alexander Graham Bell
Granted Patent for Telephone, March 7, 2011, available at http://www.findingdulcinea.com/news/on-this-day/March-
April-08/On-this-Day--Alexander-Graham-Bell-Patents-Telephone.html (Last visited on 14th March 2018).
2
Thomas Alva Edison described the object of his invention was to “produce electric lamps giving light by
incandescence, which lamps shall have high resistance, so as to allow of the practical subdivision of the electric light.”.
He filed for patent application on 4 November 1879 and the patent was granted on 27 January 1880. See
http://americanhistory.si.edu/lighting/history/patents/ed_inc.htm.
3
Marshal Phelps, Do Patents Really Promote Innovation? A Response to The Economist, September 16, 2015, available
at https://www.forbes.com/sites/marshallphelps/2015/09/16/do-patents-really-promote-innovation-a-response-to-the-
economist/#6d4ad9851921 (Last visited on 14th March 2018).
4
Id.
5
Arora, Ashish and Ceccagnoli, Marco and Cohen, Wesley M., R&D and the Patent Premium (January 2003). NBER
Working Paper No. w9431. Available at SSRN: https://ssrn.com/abstract=368187 (Last visited on 14th March 2018).
6
Id. The authors in the paper refer to works of economists like Gallini (2002), Merges and Nelson (1990), Scotchmer
(1991) among others.
rival’s7. The other arguments were ranged from the negative impact of licensing by upstream
inventors on downstream inventions8 to blockage by inventor firms through patent system of more
or differently potential competitors from subsequent research9 among other several other arguments.
However, this paper, will not address all the above-mentioned issues while analysing the
relationship between patents and innovation, rather would look into certain similar as well as
different facets of this relationship. It will analyse the relationship through the feasibility and the
role of utility model of patents or the second-tier invention protection in innovation. It will also look
into the various endeavours to promote innovation by the Dayh-Bole Act and the Innovation Act,
2008.

The Relationship between Patents and Innovation

DIRECT IMPACT OF THE NATURE OF PATENT REGIMES ON INNOVATION

In this section, the paper will look into the direct implications of different patent regimes, i.e.,
strong patent regimes and weak patent regimes and its affects on the incentives to invent. Several
empirical studies conducted over a long period of time have suggested that ‘invented effort is
motivated by expected profits’10. In simpler words, the higher the incentives for invention, the more
motivation to invent. This implies that a strong patent system which provides greater incentives
shall be more conducive to an innovation fostering environment. The counter arguments to this
however suggest that a weaker patent regime or no patent regime indicates higher innovation rates.
Such arguments are based on the ideas that a weak/no patent regime allows knowledge sharing
which in turn fosters greater innovation11. Both structures have their own pros and cons, and
therefore, to come to an overall balanced outcome, role of both structures in fostering innovation
has to be analysed.

Strong Patent Regimes and Innovation

7
Id. The authors borrowed this argument from Horstmann, I., MacDonald, J.M., Slivinski, A., 1985. Patents as
information transfer mechanisms: to patent or (maybe) not to patent. Journal of Political Economy 93, 837–858.
8
Id. The authors borrowed this argument from Gallini, N., 2002. The economics of patents: lessons from recent U.S.
patent reform. Journal of Economic Perspectives 16, 131–154.
9
Id. The authors borrowed this argument from Bessen, J., Maskin, R., 2000. Sequential innovation, patents, and
imitation. M.I.T., Department of Economics Working Paper, 00–01.
10
Petra Moser, How Do Patent Laws Influence Innovation? Evidence from Nineteenth-Century World's Fairs, The
American Economic Review, Vol. 95, No. 4 (Sep., 2005), pp. 1214-1236.
11
Petra Moser, Patents and Innovation: Evidence from Economic History, Journal of Economic Perspectives—Volume
27, Number 1—Winter 2013—Pages 23–44.
Majority of patent law scholars, intellectual property specialists and economists agree with the view
that a stronger patent regime fosters innovation 12. If one goes back to the beginning of the advent of
the patent law regime, the very motivation behind such system was always to incentivise inventors.
The justification for incentivisation stemmed in the idea that inventors spend a lot of time, effort,
money and other resources to invent or create something which did not previously exist, and for that
reason they are needed to be rewarded. The other way one could justify incentivising inventors was
that the fact they invented something useful was a service to the public at large and was required to
be recognised and rewarded. This argument basically works around the premise that there existed a
problem in the society that the invention seeks to solve and provided the invention solves the
problem. Choose to look it at any other way, the reason patents were introduced was to induce to
inventors to keep inventing.

There is however a flip side to this as well. One of the elements of a strong patent regime would be
a stricter approach towards successive innovation activity. In other words, when a strong patent
system provides expansive rights to an inventor in regards to his invention, it hinders successive and
subsequent developments in and around the patented invention by potential competitors as it
increases the cost of innovation13. This has been a documented trend in the semiconductors industry
in the United States14. Since the final product in the semiconductor industries depend upon
technologies and ideas of other owners, getting approval or licenses for each idea and/or technology
becomes extremely costly15. However, many scholars choose to argue in this line of thought
wherein an environment which has a strong patent system, but no licensing provisions, competitors
and rivals are only left with either; imitation or innovation by themselves, among which the latter
seems more feasible. Therefore, from this comes the argument that a strong patent regime with no
scope for licensing actually fosters innovation.

Weak/No Patent Regime and Innovation

Contrary to popular opinion, several economists and academicians suggest that a country with a
weak or no patent regime flourishes with greater innovative activity, substantiating their claims with

12
GENE QUINN, Maximizing innovation requires a strong patent system, March 31, 2015, available at
http://www.ipwatchdog.com/2015/03/31/maximizing-innovation-requires-a-strong-patent-system/id=56285/ (Last
visited on 15th March 2018).
13
JASON WIENS & CHRIS JACKSON, How Intellectual Property Can Help or Hinder Innovation, July 4, 2015, available
at https://www.kauffman.org/what-we-do/resources/entrepreneurship-policy-digest/how-intellectual-property-can-help-
or-hinder-innovation (Last visited on 15th March 2018)
14
SOMA DEY, Are Patents Discouraging Innovation?, available at
http://fmwww.bc.edu/RePEc/sed2006/up.21723.1139896907.pdf (Last visited on 15th March, 2018).
15
Petra Moser (2013), supra
recent studies and surveys16. The basic case made for weak or no patent regimes is that innovation
becomes cheaper in a space where expansive monopoly rights over an invention are feebly
granted17. In simple words, inventors would be motivated towards creating inventions when they
don’t have to invest a lot on such inventions. Further, knowledge sharing becomes less restricted
leading to more innovations18. Peter Moser, taking inspiration from the works of Levin, Nelson, and
Winter among others, argues that “in countries with no patent laws or in industries which rely on
alternative mechanisms to protect their inventions i.e. through secrecy and lead time, survey data
for the late twentieth century indicate that commercial research and development labs in most
industries deem alternative mechanisms to be more effective than patents. Historical accounts also
indicate that innovation often occurs independently of patents as a result of knowledge sharing or
cultural attitudes that encourage risk taking and scientific experimentation”19. This poses a question
of the efficiency of alternate mechanisms of intellectual property protection (like secrecy and lead-
time) over patents on motivating innovations. However, it is really difficult to substantiate such
claims with logic, since ideally alternative mechanisms like secrecy would deter innovation as
inventors would now keep the details of their inventions a secret.

The problems with having a weak or no patent regime leads to suboptimal innovation, as inventors
may not be able to recover the costs of inventing and patenting of such invention within the limited
rights that are granted by a weak patent regime. Further, weak patent rights lead to increased costs
on protection of inventions20. Since such patent regime only provides suboptimal protection,
inventors would have to strive harder to protect their innovations. Also, as explained above,
knowledge sharing cannot be said to be direct consequence of an environment where there is no
patent system. Therefore, it is really hard to claim that weak/no patent regimes have a complete
positive impact on innovations.

THE UTILITY OF UTILITY MODEL/SECOND-TIER INVENTION ON

INNOVATION AND R&D

What are utility models and how are they different from a traditional patent regime system?

In many jurisdictions, there simultaneously exists with traditional patent rights, a model which
grants lesser incentives and protections to certain categories of inventions. Such models are utility
16
PETRA MOSER, How Do Patent Laws Influence Innovation? Evidence from 19th-Century World Fairs, December 28,
2004, available at http://web.mit.edu/moser/www/pat501.pdf (Last visited on 15th March 2018).
17
Weins & Jackson, supra
18
Id.
19
Petra Moser (2013), supra
20
Weins & Jackson, supra
models of intellectual property protection (also known as ‘innovation patents’ and ‘petty patents’ in
some jurisdictions)21. These models are best suited to incentivise ‘incremental inventions’. The
major differences between a utility model and a patent system lies on the qualifications on which
such patents ae granted along with the quantum of incentives. Utility models provide a lesser period
of monopoly (mostly between 7 – 10 years, usually without the option of renewal) in comparison to
traditional patent systems which generally provide a stronger monopoly period of 20 years 22. In
regard to the qualifying conditions for being granted monopoly under both systems, ‘novelty’ is a
pre-requisite condition that has to be complied, but the threshold for qualifying ‘inventive step’ or
‘non-obviousness’ is sometimes quite low or absent in utility models, in comparison to traditional
patent systems where the threshold is pretty high 23. Further, utility models are mostly found to
incentivise incremental inventions which may fall out of patentability in a traditional patent
system24. “In most countries where utility model protection is available, patent offices do not
examine applications as to substance prior to registration. This means that the registration process is
often significantly simpler and faster, taking, on average, six months. Utility models are much
cheaper to obtain and to maintain. In some countries, utility model protection can only be obtained
for certain fields of technology and only for products but not for processes” 25. As of now, there are
close to 100 nations which follow such models for short term patent protection with major countries
being Australia, Germany, Italy and Japan.

The Impact of Utility Model of IPR Protection on Innovation

Proponents of utility models often argue that such a system of IPR protection is necessary for
sustainable innovation. It has been claimed by scholars like Herbert Hovenkamp that “by common
consensus, the two most important prerequisites for healthy innovation are a large public domain of
ideas and protection for the incremental innovations that continuously enrich our stock”26. Usually
the threshold in traditional patent systems are very high to qualify ‘inventive step’ in incremental
inventions. For example, protection for any improvements or developments which result in
significant increase of efficiency of an existing patented invention becomes impossible in a

21
Utility Model, January 30th, 2018, available at https://en.wikipedia.org/wiki/Utility_model (Last visited on 15th March
2018) Also see N. Ayse Odman Boztosun, Exploring the Utility of Utility Models for Fostering Innovation, September
22, 2010, Journal of Intellectual Property Rights, Vol 15, November 2010, pp 429-439
22
WIPO, Protecting Innovations by Utility Models, available at
http://www.wipo.int/sme/en/ip_business/utility_models/utility_models.htm (Last visited on 15th March 2018)
23
Id.
24
Id.
25
Id.
26
N. Ayse Odman Boztosun, Exploring the Utility of Utility Models for Fostering Innovation, September 22, 2010,
Journal of Intellectual Property Rights, Vol 15, November 2010, pp 429-439
traditional patent system, as such improvements and developments may not be ‘sufficient’ to
qualify for an additional 20 years monopoly. This line of argument is quite justified as irresponsibly
granting monopoly is never good for the innovative health of a nation. However, with utility
models, this problem of prolonged monopoly is negated as the monopoly granted in petty patents
are for a lesser duration. Since the threshold of inventive step is lowered by utility models, inventors
are encouraged towards further research and development of an existing technology. Further,
adoption of such a system for fostering innovation is justified on meeting essential needs of the
market economy27. Utility models also act as catalysts in advance of technology, as it leaves
patented technology open to exploitation and improvement, especially in cases of new technology,
which fall out of the scope of further deliberation on account of the strong monopoly it enjoys under
traditional patent systems. The structure of a utility model has to be properly constructed to make it
conducive to fostering innovations. Elements like scope of patentable subject matter should be kept
as wide as possible, the grant and application of such patents should be kept simple, transparent and
less-time consuming28. Further, patents are granted under such systems should be easily exploitable
and should provide protection at par with that of traditional patent systems (except the duration of
monopoly)29.

The problem of ‘Evergreening of Patents’?

Utility models somewhat solve the problems of evergreening of patents, especially in

pharmaceuticals industries. Evergreening takes place when companies slyly take steps to extend
monopoly of their inventions just before they expire 30. Companies either do so by withholding
complete disclosure regarding one of the utilities and releasing it just before expiry of monopoly.
Such ‘pseudo increments’ delay expiry of monopoly for another 20 years. Utility model even
though help such sham inventions to get monopoly, however such is quite restricted in regard to its
duration. A lot of nations who haven’t adopted the utility model yet, completely disregard
incremental inventions due to the threat of abuse of monopoly by evergreening, India being one of
them is very vocal about such issues31. However, such anticipation of risks undermines incremental
innovations. Therefore, utility models help to attain a balance wherein incremental invention are
incentivised but not on the cost of indefinite evergreening of patents, taking care of both innovation
and abuse of patents.
27
Id.
28
Id.
29
Id.
30
M.D. Nair, TRIPS, WTO and IPR: Debate on Evergreening of Patents and IPA 2005, April 2nd, 2009, Journal of
Intellectual Property Rights, Vol 14, May 2009, pp 258-259.
31
Section 3(d) of the Patent Act, 1970 is very restrictive of granting monopoly to incremental inventions.
VARIOUS ENDEAVOURS TO PROMOTE INNOVATION

The Bayh-Dole Act, 1980n (United States of America)

The Bayh-Dole Act (also known as the Patent and Trademark Law Amendments Act) is a U.S.
legislation dealing with federal government-funded research in intellectual property. It was adopted
in the year 198032. The major objective of this was to encourage creation of inventions by
universities, small business enterprises and NPOs33. The Act proposed to make changes regarding
the ownership of inventions made with federal funding. Now non-profit organisations like
universities and smes could retain their title to inventions developed under research programs
funded by the federal government. This was said to be a very inspiring step towards innovation in
the U.S. history of intellectual property34.

The Utilisation of Public Funded Intellectual Property Bill, 2008 (India)

Taking inspiration from the U.S. Bayh-Dole Act, India brought about a similar bill which allowed
the title to inventions developed under government funded research programs to be retained by the
non-profit organisations creating such inventions35. This Bill was considered highly controversial as
many stakeholders criticised it immensely36. The Standing Committee returned the Bill to the
Government for further review taking into considerations the criticisms of various stakeholders37.

National Innovations Act, 2008

The National Innovation Act, 2008 was adopted with the objective to promote innovation and
exploitation of technology, addressing the lacunae that exists in the current Indian patent system 38.
The Patent Act very restrictive regarding its definition of inventions leaves very little scope for
invention exploitation. It seeks to take care of incremental or significant technical advance or
change in existing patented inventions39.

32
Bayh-Dole Act, available at https://www.autm.net/advocacy-topics/government-issues/bayh-dole-act/ (Last visited on
15th March 2018)
33
Id.
34
Id.
35
Joelle Dountio O, The Indian Protection and Utilisation of Public Funded Intellectual Property Bill, 2008: Does it
Secure Access to Medicines? March 15, 2016, Journal of Intellectual Property Rights, Vol 21, May 2016, pp 140-148.
36
Id.
37
Id.
38
A Probe On The Proposed National Innovation Act, 2008, October 14, 2008, available at
http://www.mondaq.com/india/x/67750/Patent/A+Probe+On+The+Proposed+National+Innovation+Act+2008 (Last
visited on 15th March 2018)
39
Id.
 Conclusion

From the above discussions and analysis, it was found that the relationship between patent systems
and innovation is multi-layered. There cannot be a hard and fast rule regarding patent system’s
impact on innovation. As seen above innovation is affected differently in different situations. Both
strong and weak patents have their pro and cons and respond differently in different sectors. A
strong patent system provides greater protection and incentives but compromises exploitation. A
weak patent system however enables free knowledge sharing and exploitation but requires higher
costs for protection of invention. As explained above, it creates a situation of ‘one man’s meat is
another man’s poison’. For example, the semiconductors industry would thrive in a patent system
where exploitation is easier.

In regard to the utility model of patent, it again depends on the type and nature of inventions under
scrutiny. Incremental inventions are more suited for a utility model, whereas pharmaceuticals are
best protected through traditional patent systems.

In the end it comes down to what is the patentable subject matter, market, industry and motivation
of the inventor which is important for determining the relationship between patent and innovation.