14 The patent system has many flaws. In its absence, there would probably be increased innovation if only because money spent on patents and lawsuits would be available for R&D. In any case, an inventor is to some extent protected by law provided he explains that an idea is his personal property. A patent adds nothing to the value of an impractical invention and little to one that might seem promising. Pierre Desrochers is Senior Research Fellow, Urban Studies, Institute for Policy Studies, Johns Hopkins University, Baltimore, MD. Excludability, creativity and the case against the patent system Pierre Desrochers Science policy One of the few topics over which free-market proponents often radically disagree is the relevance of the patent system. 1 According to some, without patent protection an inventor has no incentive to invest time and money into something that can be easily copied by its competitors without incurring significant R&D costs. Patents therefore correct this market failure by providing a temporary monopoly to the inventor. Even though monopolies typically involve a misallocation of society’s resources, any welfare losses due to the restrictions in disseminating an invention are outweighed by the incentive to invention they provide. Besides, the fact that the technological bases for these rights are made public contributes to the body of generally accessible information. Furthermore, to the extent that patents cover successful process innovation, lower costs of production and lower market prices will result even if the patentee behaves like a rational monopolist. Despite this rationale, there has always been a set of thorny issues about the patent system. For example, patent holders may capitalise on inventions by suppressing their development, even though these inventions would benefit the public. Furthermore, the patent system provides incentives to focus on what is patentable and on developing certain superfluous innovations simply to avoid what is covered by a patent. 2 The arguments for and against patents are probably as old as the patent system and numerous studies on both sides of the debate can be found.Yet, most analytical and historical examinations of patents and their meaning for technology and economic growth are generally deemed inconclusive.The authors of many empirical studies point out that patents do not play anything like a dominant role among the various mechanisms by which returns from innovation are captured. Indeed, for most firms trade secrets, know-how, lead time to markets, continuing technological innovation, licensing, name recognition, service capabilities and the use of complementary marketing and manufacturing capabilities are often deemed more effective than patent protection. In the end, in virtually all branches of industry, the absence of patent protection would have had little or no impact on the innovative efforts of a majority of firms. 3 To understand how this can be, one must go back to the essence of what patents are (and are not) and to the way human creativity actually generates new ideas and products. A right to exclude, but not to use A patent is a property right granted by a government to an inventor or his assignee to exclude others from making, using or selling an invention fulfilling certain requirements, most notably that it performs a ‘useful’ function.What needs emphasis, however, is that a patent only grants the patentee the right to prevent others from practising the patented invention, not of using it.There are thus special circumstances where a patent owner cannot use his own invention because it would infringe on the patent rights of others. For example, inventor Jones patents a device comprised of components A, B and C. Inventor Smith improves on Jones’s invention by adding D.Smith can then get a patent on the new device with components A, B, C and D. Inventor Smith can prevent everyone from using the device with these four components, but he cannot use it either because it infringes on inventor Jones’s patent. On the other hand, Jones cannot add component D to his patented device because that would infringe on Smith’s patent. Such situations are very typical. As one American lawyer has put it: ‘Everybody is infringing everybody’s patents all the time. So one guy puts a pile of papers five inches high on the table, and the other guys have a smaller pile.’ 4 What then typically results in such a scenario is a cross-licence between the original and improvement patent owners, with or without money being thrown in. Another issue that must be stressed is that the final responsibility for validating or invalidating a patent lies with the court. In practice, the burden of proof of infringement lies with the patent owner because the alleged offender is held innocent until proven guilty. Furthermore, the patent office is not responsible for failure to discover previous conflicting claims, which means that a patentee never knows for sure if his patent will be deemed valid by a judge (who might also lack the training to understand the technical aspects of a case). Even though it is often argued that there is a presumption of validity on behalf of the patentee, as one critic pointed out many decades ago: ‘Numbers are stamped by an impartial numbering machine but patents are granted by all-too-human examiners.’ 5 Considering the huge amounts of money needed to use the patent system successfully (to hire patent attorneys and industrial drawers, to file applications, to manage a portfolio of patents in many countries, to renew patents and to sue alleged infringers in courts), such a process is not too comforting even if in some cases damage suits have proven very lucrative.A patent protects the