Patent problems continue to worry. I have no idea if anyone else has suggested something like the following solution. Someone probably suggested it a long time ago and was quickly smacked in the face for missing some obvious problem that I’m also missing. If so, then please feel free to smack me, too, dear readers.
Here are some things I think are true:
- The number and/or strength of patents should be reduced, especially in tech fields. See the Tabarrok curve. Besides their direct harm on innovation, the current patent system diverts all kinds of resources to rent seeking.
- Any legislation that attempts to rectify this problem by saying something substantive about what constitutes patent-worthiness is unlikely to help at all. For example, any attempt to strengthen the criterion for novelty across all fields will fail. It would just divert further resources to rent seeking because more clever lawyers will be required to create more clever/strained arguments about whether the new standard applies.
- For similar reasons, exempting certain fields probably won’t help much either.
My suggestion? Simply implement a recurring tax on patent holders, much like a land tax. Someone might object that this, too, is unworkable because the problem of valuing patents properly is at least as complex as the current problem. However, I think we can get around this by throwing in two rules:
- Allow the patent holder to unilaterally value the patent.
- Cap the damages that the holder could recoup through any litigation over the patent’s violation to some transparent function of the value of the patent at the time of the violation(s)
The rates could vary in any number of ways with the age and value of the patent. Maybe you also want to allow a very short, tax-free initial period (maybe a year or two). Perhaps subsequent years’ valuations are constrained by some function of previous years’ valuations. Regardless of the details, this seems like a very clean way to do things. Nothing about the patent application/granting process has to change, and at no point does a politician’s or layperson’s opinion on what constitutes novelty in the field of software or gene therapy seep into the mix. Patent trolls shutter their doors almost overnight. It would certainly take time to find the right constellation of tax rates and legal damages functions to sufficiently deter patent violators while not eating into holders’ profits too much. Nonetheless, that doesn’t strike me as an unsolvably complex problem.
There could also be problems with “predatory” behavior, akin to current patent trolling. Maybe a company acquires a patent they have no plans to use and values it at near $0. However, they do this to lure a competitor into investing a billion dollars into a bunch of factories and then revalue the patent to some astronomical value for one year to bankrupt the competitor. The company holding the patent pays a big tax bill one year, but they kill a competitor. Again, though, this seems like a very solvable problem. Similar to what I suggested above about constraining future valuations by past valuations, perhaps we require minimum valuation increase in patents as time goes on, so that no old, nearly-valueless patents hang around.
So, is this suggestion dumb? Old? Dumb and old? Tell me how you really feel, dear readers.