Trade treaties and patent policy: searching for a balanced approach

Abstract

Patents were originally designed to encourage technological innovation, which would not otherwise occur, and which create spillover benefits. Careful design is needed to ensure patents do not provide windfall benefits to inventions which would take place absent patents. Further, for the grant of a patent to be economically rational the patented invention must have a reasonable probability of providing spillover (dynamic growth) benefits that exceed monopoly (static inefficiency) losses. This paper draws on the substantial empirical research on industrial innovation and how patent systems work in practice to develop a first-best set of policy parameters for a balanced (parsimonious) patent system. That is, it attempts to design a set of parameters which maximise dynamic growth benefits while minimising static efficiency losses, thus complying with TRIPS Article 7. These parameters are compared with TRIPS and with the TRIPS-Plus elements which the USA is seeking from bi-lateral and regional trade treaties. The resulting schema allows a clearer view of the cost of patent policy provisions in "trade" treaties.