The U.S. Patent and Trademark Office recently issued its 7 millionth patent. While we hear a lot about what is wrong with the United States' patent system, this momentous anniversary provides a good opportunity to consider what is right.
Patents and intellectual property are an important part of a company's value. By some estimates, the value of all intellectual property in the United States may be as high as $5.5 trillion -- that's one-third of the market value of all U.S. stocks combined.
The patent system is so central to the philosophy of this country that the founding fathers included a distinct clause in the constitution to protect patent rights. The U.S. Patent & Trademark Office (USPTO) has operated since the early days of the U.S. government. Even the Confederacy, with its starvation and scarce resources, set up a patent office.
Many have called patents evil, but where would we be without them? The great U.S innovations were aided by the patent system -- the Wright Brothers' airplane, Eli Whitney's cotton gin, Andrew J. Moyer's mass production of penicillin, Bill Gate's operating system and many others. Patents require innovators to disclose details about their invention in order to obtain protection. This allows others to learn from this work and avoid "reinvention of the wheel."
Of course, no one wants to teach the world their secrets for nothing. The patent system gives inventors a "monopoly" on the idea in return for disclosing how to make it. While Eli Whitney showed people a better way to produce cotton, he was the only person who could rightfully use that cotton gin for the next 17 years. This exclusive right to the subject matter of the innovation is a powerful, valuable and fair reward. A reward that is 7 million strong.
Patents provide companies with inherent value beyond the technology they are actually developing. A patent can be used to create a competitive advantage in the marketplace. It can be used to keep others from copying features of a product, thus making the company the sole provider of those features. Holding a patent may alternatively require others to pay some royalty in order to use those features.
Having a strong patent also prevents outright copying of a product by others. This avoids the otherwise unfair pricing that these companies could offer, since they have no costs from extensive research and development, only the costs of copying. A number of companies in the Far East have a business model of finding U.S. products that are being made and accepted in the marketplace and copying those products exactly, down to the smallest detail. These Far East copies are sometimes available for half the price of the original mode. Patents may be the only thing that stops these copiers.
Patents also have substantial advantages for a company's investors. There is an urban legend is that if you build a better mousetrap, the world will beat a path to your door. The reality, however, is that commercial success relies on many different factors. Early stage companies often take investments from investors, and then either make a product or fail trying. If the company or product fails, the intellectual property may survive and often provides value to the investors of a type, even if it was never contemplated when they made the investment. Intellectual property is often a company's last remaining asset during liquidation.
Other countries have patent systems, but the U.S. is still the best place to get a patent, as evidenced by the fact that there are 7 million. Patent filing fees have increased sharply in recent years, but they are still well below the international average. The U.S. also provides more complete patent enforcement remedies than anywhere else in the world. Successful enforcement of a U.S. patent allows the winner to collect royalties, lost profits, or other money. It can be used to stop the infringer from making the product or importing infringing products -- a remedy that is available virtually nowhere else in the world.
So the next time you hear someone say, "I don't believe in patents -- everyone should compete freely," think about how overly simplistic and na've that idea actually is. Patents have changed our lives and our world in more positive ways than any of us can imagine. Here's to 7 million more.
Harris is a principal in the San Diego office of Fish & Richardson P.C., one of the largest intellectual property law firms in the world. He can be reached at email@example.com.