What Drives People to File (or Not File) Patents?

Why do some people file patents for their inventions while others don't? The story of Daisuke Inoue provides an insightful example.

What Drives People to File (or Not File) Patents?
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Why do some people file patents for their inventions while others don't? The story of Daisuke Inoue provides an insightful example. Despite being credited with the invention of karaoke in the 1970s, he did not file for a patent and thus missed out on potential profits that other individuals made from his creation.

The concept of "karaoke" involves singing along to pre-recorded instrumental tracks. Inoue, the inventor behind this idea, was inspired by his audience's enthusiasm during live band performances where they sang together as a group. Being a self-taught musician himself, he aimed to enhance collective enjoyment without additional singers or musicians on stage. Consequently, he recorded backing tracks which could be played back when needed resulting in the birth of what we now know as "karaoke," Japanese words for "empty orchestra." Roberto del Rosario obtained patents in the 1980s for an innovative invention- a machine that would become known worldwide as the "karaoke." It is fascinating to see how far this invention has come since its inception. Today, karaoke machines are incredibly prevalent in Japan and can be found almost everywhere - from private homes to popular entertainment venues like hotel lobbies, bars, clubs and restaurants. Notably, modern versions of these machines boast advanced features including pitch manipulation options and microphone connectivity- thereby appealing to both professional singers and casual users alike.As Inoue famously stated, "I merely combine existing components" He further added that he used a car stereo, coin box and mini amplifier when creating karaoke, who would even think of seeking patent protection for such things?

Inoue's story poses an intriguing inquiry: what influences an inventor to seek a patent and why do some choose not to? it's important to note that not all ideas can be patented. Merely having an idea does not automatically qualify it for patent protection. To obtain a patent, an invention must meet certain criteria, including novelty, application, and non-obviousness. These factors play a vital role in determining the value and potential of an invention.

While we may generally think that patents encourage innovation and research, researchers haven't fully explored how valuable they are for entrepreneurs and independent inventors. It's crucial to recognise that patents are about the future—their benefits and outcomes lie ahead. However, some individuals may question the worth of investing in uncertain future rewards, particularly if they fail to see the potential value of those rewards. This viewpoint is similar to Daisuke's lack of acknowledgement towards the significance of strategic foresight. As well as the prominent example of fidget spinner, whose inventor didn’t file for a reissue of the patent as it was costly at the time only to loose out when it trended in 2017.

Patent rights are inherently uncertain and precarious forms of property, as highlighted by Judge A.C. Coxe's assertion that no other property is as uncertain or speculative as patents. Filing and even holding onto patent rights requires unwavering faith in innovation and confidence in its market viability.

In a similar vein, F.M. Scherer, a Harvard economist, draws a parallel between patents and lotteries in his analysis of the "Innovation lottery." Both involve significant uncertainty and offer no guarantee of a specific payoff. Scherer's research also sheds light on the distribution of patent values and rewards. He finds that the expected median return from patents is significantly lower than the expected mean return for innovative activities. This skewed distribution indicates that only a minority of "spectacular winners" capture the majority of rewards. This disparity underscores the risky nature of innovation and the challenges encountered by individual inventors and small entrepreneurs in pursuit of patent protection.

The decision to pursue patent protection is influenced by a complex interplay of factors, including the perceived value of future rewards, confidence in the innovation's market viability, and the willingness to navigate the uncertainties and challenges associated with patent rights.

However, Prof. Dennis D. Crouch's paper examines the limitations of using the lottery analogy to explain innovation and patent protection. While patents share some similarities with lotteries in terms of uncertainty and potential rewards, there are additional purposes and incentives behind seeking patents beyond exclusive rights and licensing fees.

Despite the uncertainty and skewed reward distribution, there are various factors that motivate individuals to file patents. One possible explanation is the allure of significant rewards, even with low odds of success. This can be observed in sweepstakes lotteries, where individuals eagerly participate despite the slim chance of winning. The prospect of a substantial payoff seems to outweigh the risk for some people, similar to the mindset of investors in high-technology startups. The potential for extraordinary success and wealth acts as a powerful motivator, similar to the attraction of a large lottery prize.

Its important to note that not all individuals are solely driven by monetary rewards. In the arts and certain areas of technology, non-financial motives such as personal fulfillment, passion, and the desire to make a positive impact on society play significant roles. While financial incentives are seen as desirable, they may not be the primary driving force for many artists, authors, or inventors.

The behaviour of individual innovators also differs from that of well-established corporate organisations. Large corporations, known for their risk aversion, make decisions based on different factors. The rewards for employed inventors or research and development managers within corporate hierarchies are generally modest compared to the potential rewards observed among high-technology entrepreneurs. This discrepancy explains why a significant share of bold technological innovations historically originated outside large corporations, with high-technology startups contributing significantly to technological dynamism.

As Prof. Dennis notes that patents serve various purposes, including acting as deterrents to competitors, establishing patent evergreening, and providing investment value. Innovation is driven by a combination of factors, such as the desire for first-mover advantage, meeting customer demands, and seizing market opportunities. Even when these patent incentives are present, some inventors still choose not to seek patents. Therefore, it does not capture the entirety of the complex decision-making process.

Individual inventors and small entrepreneurs engaging in innovative activities face greater risks compared to larger corporate initiatives. These smaller operators often lack the financial resources, research and development capabilities, and market understanding to navigate the patent system effectively.The decision to become an inventor is not typically made by risk-averse individuals. In fact, inventors are often among the least risk-averse individuals due to their willingness to take on the uncertainties and challenges associated with innovation.One important consideration that Prof. Dennis points is the belief that inventers are willing to partake in patent activities with negative expected value because of their risk-seeking behaviour. Though this concept may apply to US state-run lotteries, it does not necessarily reflect the granting of patents. Prospective innovators assess the potential payout from obtaining a patent against the costs linked with pursuing innovation, signifying an astute evaluation of risks and rewards aligned with sound decision-making practices.

Behavioural economics offers valuable insights into the factors that influence individuals' decisions to file patents. It highlights the significance of non-financial incentives such as recognition, status, and social approval, which can play a substantial role in shaping patent filing choices. This perspective challenges the assumptions of Expected utility theory, which assumes rational decision-making driven by risk aversion. In contrast, behavioural economics reveals that real people often deviate from rational behaviuor when making decisions.Understanding this deviation is crucial as it suggests that considerations beyond financial gain are important drivers in the decision to file patents. By exploring the behavioural economic factors at play, we can gain a deeper understanding of the complex dynamics surrounding patent filing decisions and how they diverge from traditional rational models.

In the context of patents, this deviation can manifest as individuals overvaluing the probabilities of unlikely events, leading them to make decisions that defy expected utility theory. Such behaviour may contribute to the phenomenon of inventors choosing not to file patents. The reasons behind this tendency to overvalue long odds remain a topic of ongoing debate within the field of behavioural economics, and its specific impact on patent decisions remains largely unexplored.Previous research in patent law has primarily concentrated on hindsight bias and confirmation bias, analysing the patentability of inventions that have already popular. These biases can lead to distorted assessments, as they involve perceiving an invention as more obvious or predictable than it actually was before its success. However, limited attention has been given to exploring the implications of behavioural economics for the initial decision to invest in innovation and file patents. By delving deeper into the interplay between behavioural economics and patent decisions, we can gain a more comprehensive understanding of the motivations and influences that drive inventors' choices. This knowledge will not only enhance our understanding of the patent landscape but also provide valuable insights for aspiring innovators. So, rather than being discouraged by the uncertainties and intricacies associated patenting, they can make informed decisions, navigate the patent landscape with confidence, and propel their innovative ideas forward.