“The patent system is built on a grand bargain: to gain exclusive rights to practice their inventions, inventors must disclose their proprietary knowledge publicly.”
As highlighted in the quote above by researchers Deepak Hegde and Stuart Graham in Science Magazine, the patent system relies on a concession between secrecy vs. transparency.
While pop culture may bias us to think of inventors as primarily secretive – I like to think of Morgan Freeman’s character building incredible things in Batman’s cave – the reality is that inventors are trying to balance the secrecy and transparency trade-off.
In the United States, patent applications go through the US Patent & Trade Office (USPTO), which has the power to change how these trade-offs work. 15 years ago, the USPTO did just that.
Change in the Law
Prior to 1999, inventors had the freedom to keep patent ideas secret until they were granted by the US Patents & Trade Commission.
This was inconsistent with most international patent law, as most other countries have required inventors to publish their patent application to the public within 18 months of filing. In 1999, Congress passed the American Inventors Protection Act (AIPA), requiring inventors to join the rest of the world and publish their filings publically within 18 months of the application date.
This law applies only to utility patents, the most common type of patent, which are granted to inventions which aid in useful or new improvements on process, machine, manufacture, or creation of new matter. AIPA exempts design patents, such as those involved in cases like the Apple-Samsung war.
This law has drawn a great deal of criticism. Upon the passing of AIPA, 24 Nobel Laureates in economics and sciences wrote a letter to Congress contending that the inability to keep patents secret until they are officially granted is detrimental to many inventors for whom patent secrecy is essential. Hegde and Graham find that policy makers are of two beliefs—the first believe secrecy in patenting is important for the private benefit to inventors, the second believe disclosure is important for the societal benefit to innovation.
Congress responded to the letter by allowing inventors to opt-out of the 18 month disclosure requirement. This would effectively nullify the AIPA law for those who choose to opt-out.
This led to several questions on the impact of AIPA, primarily:
To help understand these questions, Hegde and Graham researched whether or not inventors value secrecy in patenting.[i] In more research Hegde conducted with Hong Luo, the researchers explore time between patenting and licensing under this new law, to determine its effectiveness in creating measurable impact.[ii]
Research Findings and the Numbers
Inventors do not seem to be as concerned with secrecy as you might expect. In fact, findings show a few things to be true:
Below is a chart that shows the industries and the type of inventors, and the degree to which they choose pre-grant disclosure, secrecy, or foreign protection (seeking patent in a foreign country—which typically means disclosure before the patent is granted).
The chart above shows that U.S. large inventors choose disclosure over 50 percent of the time. U.S. small inventors choose disclosure over 60 percent of the time.[iii]
The computer and communication industry chooses pre-patent grant secrecy most often among both U.S. large and small inventors – 16.6 and 17.1 percent, respectively. U.S. large inventors choose secrecy least often in the chemical industry. U.S. large inventors and U.S. small inventors choose secrecy equally often in the drugs and medical instruments industry – 5.3 percent of the time.
Potential Benefits of Transparency to Society
The findings indicate that most inventors are comfortable disclosing their invention ideas. With that in mind, how has this benefited society?
U.S. patent law is now consistent with most of the world in terms of expecting disclosure within 18 months of application filing. The U.S. is unique in that non-disclosure is an option for inventors who choose to opt-out, should the inventor find private benefit in secrecy. More often than not, most inventors choose to disclose; and the most economically impactful patents are most often disclosed and disclosed early for public knowledge. The new transparency in patent application helps inventors save time and resources allowing them to invest more productively.
[i] Deepak Hegde and Stuart Graham, Do inventors value secrecy in patenting? Evidence from the American Inventor’s Protection Act of 1999, https://www.funginstitute.berkeley.edu/sites/default/files/HG%20AIPA%20Secrecy.pdf
[ii] Deepak Hegde and Hong Luo, Imperfect Information, Patent Publication, and the Market for Ideas. 2013 Working Paper. http://www.hbs.edu/faculty/Publication%20Files/14-019_51298c7e-29e7-4457-b9ec-0144234aa9de.pdf
[iii] U.S. small entities are defined by the USPTO as a person, a small business (by government standards), or a nonprofit. U.S. large entities are defined by the USPTO as firms that do not fall in the small entity category.
4 Insights from the Fastest Growing Companies in America: the Kansas City Experience
Compendium on Entrepreneurship and Innovation Data
Defining Entrepreneurship: From Dataset to Mindset
The 2016 Mayors Conference in 14 Tweets
2017 Kauffman Junior Faculty Fellowships: Top Scholars Wanted
Is Entrepreneurship the Most Productive Part of our Economy?
Highlights from the 2016 REER Conference