Thread by @antonhowes

Patents have problems. They give 20-year monopolies on inventions, which can sometimes be used to block further innovation.

But they also provide important incentives to make the details of inventions public.

So how might we get the benefits without the costs? A thread:

One way to do so would be to heed Nobel-prize-winning economist Michael Kremer.

He came up with a fascinating policy in 1998, which he called the patent buyout.

tenentrepreneurs.org/blog/bringing-…

Patent buyouts involve the government buying a patent from its owners and making the technology open and available for the public to use.

Just like the French government did in 1839, to release Louis Daguerre's patent for photography.

By making this technology freely available to all, the buyout unleashed a burst of creativity in the industry.

After all, when key patents expire, we sometimes see a similar effect.

Take 3D-printing. The technology seems new, but it's actually been around since the 1980s.

The reason the industry was unleashed in the 2010s was because many of the crucial patents for its underlying processes began to expire.

While those patents were in force, the number of 3D-printing patents in the US never exceeded 3,000 per year (mostly marginal improvements).

Since those patents expired, however, the number of patents in the industry has increased up to almost 45,000 per year.

And that doesn't even capture the now-flourishing movement to create open-source improvements too.

So imagine if the key patents had been bought out earlier.

But which patents to buy out? There are 100,000s of new ones each year.

There would have to be some kind of consultation to narrow down the industries, ideally to a long-list of potential bottleneck patents before randomly selecting a shortlist to even consider buying.

And then the state would have to figure out how much to pay.

If it pays too much, then it might be seen as rent-seeking. And if it offers too little, then the inventors will be unwilling to sell their patents.

Here's where Kremer came in, with an ingenious solution.

He suggested auctions. Through this price-discovery mechanism, the state could identify the highest-value patents - those probably more likely to represent the true bottlenecks slowing innovation down. And it could discover how much to pay.

The idea, specifically, was this:

A large number of different patents would be auctioned for private sale, without the bidders knowing which of them the state will offer to buy.

So the bidders would still have an incentive to provide accurate valuations, as there would be a chance of them actually winning.

To prevent collusion, the bidders would submit their bids simultaneously, and the second-highest would win.

Then the government would step in for some of them - ideally randomly selected, again to prevent collusion - and offer an amount that is a fixed % above the winning bid.

Thus, patent buyouts do not mess with the underlying patent system. They are a supplement.

The government simply pays inventors of a bottleneck patent for it to essentially expire earlier. All without messing with the underlying working of the patent system itself.

Yet, strangely, Kremer's policy has not really been tried.

With our current worries about innovation slowing down, perhaps it's time to give the patent buyout a go and see what it unleashes.

More here: tenentrepreneurs.org/blog/bringing-…