An Organizational Approach to the Design of Patent Law

6 VERTINSKY FINAL_JAD (DO NOT DELETE) 2/27/2012 2:20 PM
2012] AN ORGANIZATIONAL APPROACH 221
A. MAINSTREAM THEORIES OF PATENTS
The dominant theory underlying much of today’s patent
law and policy is the “reward theory” of patenting. 33 At its most
basic, this theory explains that patents provide necessary incentives
for invention by allowing inventors to appropriate the
returns from their efforts at the cost of restricting use of the resulting
inventions. 34 The “reward theory” is supplemented by
the “disclosure theory” of patenting, which suggests that by
providing property rights in discoveries to inventors, patents
will allow inventors to disclose their information without fear
that the benefits of the information will be appropriated. 35
Recognizing the importance of downstream investments in
exploiting new inventions, a second main branch of theories
has focused on the functions of patents in providing incentives
for the development and commercialization of inventions. This
branch includes Edmund W. Kitch’s well known “prospect theory,”
which examines the role of broad, strong patent property
rights in ensuring efficient investment in and management of
downstream innovation. 36 Other approaches focus more specifically
on the need to induce the development and commercialization
of early stage inventions where much of the investment
and problems of appropriability occur after the initial discovery
has taken place and are undertaken by different organizations.
37
These mainstream theories of patents diverge in their concern
for upstream investment versus downstream development
of the invention, and in the types of market failure that justify
the need for patent rights. But they share a similar starting
33. Kieff, supra note 9, at 398–406.
34. Without patents—or so the incentive theory of patents goes—either
the invention would be kept as a trade secret, limiting access to the idea, or
others would be able to freely copy and use the inventions at lower cost, resulting
in an under-supply of inventions and follow on innovation.
35. According to Kieff, conventional views of patents are largely based on
three dominant incentive theories of IP: (1) some version of the “incentive to
invent” and “disclose” theories treated together under the rubric of “reward,”
(2) the “prospect” theory; and (3) the commercialization theory. Kieff, supra
note 9, at 398–406; see also Rebecca Eisenberg, Patents and the Progress of
Science, 56 U. CHI. L. REV. 1017, 1024–28 (1989) (discussing alternative theories).
36. For further explanation of the prospect theory, see Edmund Kitch, The
Nature and Function of the Patent System, 20 J.L. & ECON. 265 (1977). According
to prospect theory, strong patent rights protect the incentives of the
invention owner to make investments that maximize the value of the patent.
37. Mazzoleni & Nelson, supra note 23, at 1040.