Do Patents create Monopolies or Innovation?

Inventors and entrepreneurs usually think of their patents as being among their most important business assets. However, others think that having a patent on new technology really only creates a monopoly.

To a certain extent, both of these viewpoints are valid. After all, patents fall under federal statutes and are a regulatory right. Because it can be bought and sold, a patent seems a great deal like property. Plus, thanks to the claims contained within the patent, it is possible for the owner to prevent others from using, selling, distributing and manufacturing their invention.

Although patents may seem like property, they are not necessarily real property. Real property is easy to identify, as in the case of real estate lots. They have specific and well-defined boundaries. If the owners of two adjoining plots have a disagreement about where the boundary between their land lies, this can be settled with surveyors and land deeds.

On the other hand, it is not always so easy to determine the boundaries of a patent. A patent is defined by its claims, which can sometimes seem ambiguous. Usually, high degrees of legal and technical expertise are required to accurately discern the technology that is encompassed by the claims. Still, even experts may not agree about exactly what the patent covers. This is what can lead to patent litigation, which is a costly and time-consuming pursuit without any certain outcomes.

It seems like taking a patent owner to court would be an effective means of determining exactly what a patent covers. Unfortunately, this is rarely the case. Consider that when judges make a decision about what the claims of a patent cover, their decisions are reversed approximately 40-percent of the time. Courts also may contradict one another, making it clear that determining what a patent covers is never easy.

Do Patents Create Monopolies?

Both sides of this argument have vehement supporters, but upon mature consideration, it becomes clear that patents don’t necessarily create monopolies. This is partially true because most patents end up being worthless. Perhaps they are directed toward technology that no one really needs or are so narrow in scope that competitors can easily design around the claims.

A patent can be viewed as a sort of mini-monopoly in that the patent owner is granted the power to prevent others from using their protected technology without a license or other permission. However, it is always possible for others to negotiate with the patent owner to make use of the technology. If no agreement is reached, then the competitor may try to design around the patent or wait a few years until the patent expires, at which time new innovations may look even more attractive.

What About Pharmaceutical Patents?

All industries are different, and the pharmaceutical industry is one that is frequently cited as having monopolies over drugs that could save or change lives. Proponents of the patents-as-monopolies argument point out that other developed nations have alternative systems in place that involve negotiated prices or price controls. In these other countries, the government chooses the extent to which a pharmaceutical company can exploit its monopoly.

Accordingly, people who need prescription medications in the U.S. pay about twice as much for drugs as do the citizens of other developed nations.

Detractors point out that having a patent allows a drug company to dictate the cost of potentially life-saving medications.

It is true that a patent makes it possible for a drug company to decide how much a new medication costs, and no one is arguing that the system is perfect. Still, patents expire, at which time these medications can be marketed as far less costly generic versions.

The Myth of the Patent Monopoly

The reality is that turning a patent into cold, hard cash frequently is a difficult, if not impossible, task. Few inventors will ever be greeted by the sight of a money truck or a huge check in their mailbox. Just because a patent is issued does not mean that a market exists for the covered product.

Consider that the definition of monopoly according to Merriam-Webster includes terms such as: “exclusive ownership through legal privilege, command of supply, or concerted action” and “a commodity controlled by one party.” Other dictionary definitions speak to the ability of the monopoly holder to enable the “manipulation of prices.”

Accordingly, it is rare for any inventor or even company to hold a true monopoly simply because they hold a patent. Where there is no market, no monopoly can exist.

The fact is that most patents are never commercialized. Many that are commercialized end up losing money because not enough interested customers are found. Accordingly, patents rarely grant true monopolies.

The one-time chief judge for the United States Court of Appeal for the Federal Circuit once wrote: “Nowhere in any statute is a patent described as a monopoly. The patent right is but the right to exclude others, the very definition of ‘property.’”

Despite the rumors that occasionally may circulate, it is virtually impossible for any patent to completely lock up a particular market space. This is because truly foundational technologies that are of the utmost importance to that market are rare. Most patents instead are directed to incremental improvements or advances, which means that patent rights can be quite fragile.

Work with a Qualified Intellectual Property Attorney

At Williams IP Law, we believe in the fundamental purpose and value of the American system of patents. Accordingly, we strive to obtain meaningful, comprehensive protection in every patent application that we write. If you would like to pursue a patent that protects your innovations, schedule a consultation by calling (817) 225-6561 or requesting your FREE consultation with Jeff.

Author: Jeff Williams

Jeff Williams is an experienced mechanical engineer and lawyer that consults closely with clients in a strait forward and clear manner.  He brings a particular set of strengths and unique perspectives to the firm.    
 Jeff received a B.S. in Mechanical Engineering from Arizona State University in 2005.  He was an engineer for a number of years at a number of large corporations before pursuing his law degree.  He graduated from Texas A&M University School of Law (formerly Texas Wesleyan University School of Law) with a J.D. in 2010.  By combining his education and prior work experience into the field of intellectual property law, Jeff has developed key skills to fully assist clients.