(1) Incentive to Invent

As described in Part 3 of this series, without patents, inventors would face a dilemma securing sufficient capital to exploit their inventions. Under this theory, a potential inventor might not even risk the cost of invention unless assured exclusive use of the invention, at least for a duration.

There can be considerable costs to the invention process, which often involves repetitious trial & error, and testing, all of which require facilities, labor, and supplies. Development of new drugs, for example, cost several million dollars. Even toy inventions can consume tens of thousands of dollars in the process of perfecting a child's enjoyment. Patents offer a means to recoup such costs.

There are objections to this theory. The patent grant may be too much of an incentive, causing too many firms to invest in research and development, resulting in duplicate efforts. The result may be slightly earlier invention, but at a substantially higher overall cost.

Duplicative efforts may, however, lead to distinct alternatives. Consider development of two drugs for the same disease, but with different side effects. Having different drugs may help patients who would suffer from the side effects if only one treatment were found, thus offering a choice where otherwise none may be available.

Another objection is that a patent awards too much to the inventor. After all, invention is as inevitable as the need; the issue of invention is only one of timing. But, as seen by the inventor's dilemma, without a patent system, incentive to invent may be so retarded that invention cannot be considered inevitable in absence of patents. History suggests as much, in times when would-be inventors were not assured of being able to profit from their inventions.

(2) Incentive to Disclose

Patents require disclose to grant protection. A patent grant offers an incentive to disclose the workings of an invention, both as a protection to the patentee as to what claim scope the inventor is entitled to, but also a means for others to benefit from the knowledge surrounding the invention.

The reasoning behind this theory is that trade secret is the alternative to a patent system. Such secrecy could impede scientific progress, which relies upon exchange of information to avoid duplicative efforts and curb pursuits of dead-ends.

(3) Incentive to Commercialize

The first two incentives focus on the inventor and the invention process. But an invention without employment is practically no invention at all. For society to benefit from invention, products must be made and consumed that use the invention. Thus the incentive to commercialize can be considered the strongest argument for patents.

A patent system provides fixed and public notice of intellectual property, turning a patent into a commercial commodity. This solves the inventor's dilemma - the surety of a patent grant merits risking capital for exclusive commercial exploitation.

Without patents, risk runs both ways: on the one hand, a successful product is readily copied, and the costs of invention cannot be recouped. On the other hand, an excellent invention may not be commercialized because it might fail in the marketplace, for whatever reason.

A patent allows an invention itself to be assessed as a commercial entity. In this regard, a patent is like a gold claim. There may be other claims (substitution), but the scope of a patent's claims may be assessed. Such assessment potential would not exist without patents.

Ironically, as the incentive to commercialize is strongest theory justifying patents, it is also the one for which patents are most commonly criticized - that a patent is a tradable commodity, with the potential of being a bonanza to its holder. The laughable scourging of patent trolls belies ignorance of both economics and history. Of course patents are valuable. And so, those political societies with functioning patent systems have been, and are, the most technologically advanced, and the most prosperous. Prosperity and technological advancement cannot be separated, as the former follows the latter. That there are specialists in monetizing patents, i.e., patent trolls, is as natural as having different types of bankers, lawyers, or doctors, who specialize in their respective areas of expertise.

(4) Incentive to Workaround

The value of a patent grant inspires developing workarounds - substitutes. Hence, the incentive to design around a patent is a corollary to the incentive to commercialize.

A patent taunts a competitor to circumvent infringement by developing substitutes, which themselves may be patentable. The incentive to workaround thus catalyzes innovation and strengthens the patent system, as companies race to develop patent portfolios, driven for defensive reasons, as statements of company technical prowess, and as accumulation of wealth, as patents are themselves valuable commodities.

The incentive to workaround levels the patent playing field. Though it happens regularly, prima facie it seems rather silly for a company to sue another company for patent infringement when it could readily suffer countersuit - better to negotiate a settlement than sue. Outright stupidity aside, that companies with patent portfolios sue each other instead of negotiating speaks of either: 1) an inability to valuate patent portfolios, or 2) an inability or unwillingness to negotiate. It quite common for a patent holder to be forced to litigate because an infringer refuses to negotiate. This can be the case when the infringer has no countersuit potential, and foolishly thinks that it has nothing to lose by denial.

Next, an exploration of the theories about patents.

Part 1 - Monopoly
Part 2 - Substitution
Part 3 - The Inventor's Dilemma
Part 4 - Incentives
Part 5 - Theories
Part 6 - Perspectives