UC Irvine Law Review

Scholars and policymakers have tried for years to solve the tenacious and harmful crisis of low-quality, erroneously granted patents. Far from resolving the problem, these determined efforts have resulted in hundreds of conflicting policy proposals, failed congressional bills, and no way to evaluate the policies’ value or impact or to decide between the overwhelming multiplicity of policies.

This Article provides not only new solutions but a new approach for designing and assessing policies both in patent law and legal systems more generally. We introduce a formal economic model of the patent system that differs from existing scholarship because it permits us to (1) determine how a policy change to one part of the patent system affects the system as a whole and (2) quantify the impact of policy changes. Existing scholarship typically analyzes a policy by assessing its effect on just the targeted element of the patent system, but legal systems are complex with interrelated components, and players react along multiple margins, so these analyses are incomplete and sometimes incorrect. Our approach fixes this problem, providing a comprehensive understanding of how a policy change affects the patent system from beginning to end. It also permits us to conduct complex analyses such as varying multiple policies at once. Further, much existing scholarship fails to quantify the magnitude of a policy’s effect, and even empirical scholarship can only measure the effect of an already-implemented policy, not predict the effect of a proposed change. Quantification is critical because policies generally have multiple effects, often in countervailing directions. Quantification—as shown using our model—permits scholars to determine the overall direction and size of a theoretically ambiguous effect. Quantification also allows us to compare the social welfare effects of different reforms so that policymakers know where to focus their efforts.

We apply our model to several of the most prominent policy debates in patent law. We conclude that certain reforms, such as regulation of settlement licenses and increased examination intensity, yield large gains in social welfare and should be prioritized. Other reforms that are popular with scholars, including decreasing the availability of injunctions and reducing litigation costs, produce surprisingly small gains in social welfare. Often, existing scholarship operates too much on intuition which, we show, can be wrong. Our new approach to patent reform provides an approach that offers deeper understanding and a more effective evaluation framework.