Dennis Crouch in his Patently O blog considers the possible effects of the Trump administration on the patent system, and particularly, the effects of the anti-globalization platform on which Mr. Trump ran.  Mr. Crouch makes the very interesting observation that at its heart the patent system shifts wealth – from competitors and consumers to patent holders.  In exchange, the public receives disclosure of inventions and receives progress in technology.  He argues that for much of its existence, the U.S. patent system shifted wealth from one U.S. entity (the U.S. consumer or competitor) to another U.S. entity (the U.S. patent holder).  Mr. Crouch makes the point that since 2010 more U.S. patents are issued to foreign entities than to U.S. entities and that the net shift in wealth caused by the U.S. patent system is now from the U.S. to other countries.  The wealth shifting argument is a broad simplification, which is what makes it attractive and easy to understand.  I suspect that we will hear it as a sound bite in coming years.

I believe that the wealth-shifting argument is based on a fundamental error – it assumes that the patent system is an ‘I win, you lose,’ zero-sum game, in which the patent holder benefits at the expense of everyone else.  The nature of the patent system is to create wealth out of the thin air where nothing existed before.  In the absence of constraints to consumer choice, such as government action, consumers lose nothing as a result of the patent system and gain the benefit of choice in the form of new and innovative products from which to choose.  A competitor whose old product is rendered obsolete by the new, patented invention will lose as consumers exercise their power to choose and choose the new product.  The patent system at its best continually drives innovation and continually disrupts the status quo.  Woe to the (temporarily) dominant competitor that rests on its laurels and does not seek continual innovation. Sounds pretty American, doesn’t it

There are subtleties to the wealth shifting argument.  In the era of multinational corporations and broadly dispersed ownership of those corporations, how can we determine whether a U.S. patent to such a corporation shifts wealth to or from the U.S.? What about the value to the U.S. economy of the increased economic activity resulting from sales of the patented invention owned by a foreign entity?  What about the value of future innovation based on disclosure in the U.S. of a new technology developed overseas?  What about the value to U.S. invention owners of patents in other countries that pump wealth from the other countries to the U.S.?

Mr. Crouch suggests that the Trump administration may use the U.S. International Trade Commission to discourage imports to limit the effect of wealth shifting, and thereby risk a trade war.  We can only hope that the incoming administration does not destroy the USPTO in a misguided attempt to stop the offshore flow of wealth that may, or may not, be caused by the patent system.

–Robert Yarbrough, Esq.