Prior User Rights Study Report to Congress - America Invents Act

to a basic failure in the market for ideas. 162 It has been recognized that ideas and creativity – and theinventions that the human mind may produce – have a character like that of a public good. Unlike aprivate good, a public good suffers from an excludability problem – meaning that it is difficult to excludeothers from appropriating the economic benefits from the creator. As a result, without intervention,inventions would tend to be produced at a level lower than what is socially optimal since – without somekind of legal protection – some if not all of the economic value from creativity would flow to copiers, andnot to the creator. As a result, creators would have little incentive to invest substantial amounts of timeand capital in inventing because there would be little prospect of recouping research and developmentexpenses. Patent rights work to solve this problem by providing a legal excludability for a limited time tothe inventor, and by so doing work to provide the appropriate economic incentive to inventors to make theinvestments necessary for society to enjoy new technologies.That said, the exclusivity provided by society to inventors is not complete. The Constitutionenshrines the basic economics underlying the kind of right that society ought to offer to the inventor – thatthe exclusive right be “limited” and that it be tied to other ends associated with the “progress of scienceand the useful arts.” Prior user rights tend to work against the excludability function of patents, but it isnot clear from existing research how much and to what extent that may be a problem, even apart from thefact that existing research does not address the precise form of prior user rights provided under the AIA.From an economic perspective, the availability of a prior user rights defense may offer bothadvantages and disadvantages. In terms of private benefits and costs, a preexisting inventor with a secretuse of a later patented invention would be benefited by not being prevented from practicing the invention.Conversely, a later patenting inventor would be disadvantaged by having, at the margin, feweropportunities to profit from the patented invention.The benefits and costs to society, however, are more speculative, and will include the impact thatthe availability of the defense has at least upon innovation rates, the types of innovations that areproduced, the speed and quality of that innovation, and the costs to consumers of the innovationsavailable in the marketplace. These various costs and benefits are very unclear, and there is only limitedeconomic research dealing with any of these implications.Any meaningful disadvantages associated with the availability of the defense would be driven bytwo related effects: prior user rights could discourage actual innovation in society due to the lowereconomic returns available to inventors, and the defense could discourage the choice of patenting inrelation to trade secret protection. Accordingly, it is relevant to ask whether any economic research has162 See, e.g., Kenneth J. Arrow, Economic Welfare and the Allocation of Resources for Inventions, in THE RATE ANDDIRECTION OF INVENTIVE ACTIVITY: ECONOMIC AND SOCIAL FACTORS 609-625 (Nat’l Bureau of Econ. Research1962).29