What Do Patents Purchase? In Search of Optimal Ignorance in the Patent Office

In a stimulating and thought-provoking article, "Rational Ignorance at the Patent Office," 95 NW. L. REV. 1495 (2001), Professor Mark A. Lemley urges that he does not necessarily think that there is a problem with how the U.S. Patent and Trademark Office (PTO) handles patent applications. The agency does the best it can. To use his phrase, the PTO is rationally ignorant. The agency is not omniscient and it cannot ensure that every patent is truly novel, useful, and non-obvious. As Professor Lemley puts it, "The basic idea of rational ignorance is that any person will spend only a certain amount of time or money to obtain a piece of information. If obtaining that information costs more than the information is worth, an individual will (or should) rationally choose to remain ignorant of it." Consequently, if one is to correct the patent system, the only really feasible solution is for the courts to more closely scrutinize the patents that come before them. In short, the main patent reform we need is to remove the presumption of patent validity that is currently codified in the Patent Act. We urge that Professor Lemley seems to ignore the broader goals of the PTO in determining when the agency is being rationally ignorant. As we argue, the real issue is not of rational ignorance, but optimal ignorance. In other words, what is the optimal amount of ignorance from the perspective of society, assessing both the costs and benefits of the patent system on all actors, as opposed to just the PTO collecting and assessing information about prior art and novelty and non-obviousness. Drawing from another example, as with optimal deterrence in criminal law, optimal ignorance focuses on the incentive effects throughout society, not just on specific agents, whether patent examiners or criminals. When the PTO grants a wrong patent, the patentee, nevertheless, obtains exclusive rights and the possibility of monopoly power that can generate various inefficiencies. The patent system provides other firms and inventors recourse to the judicial system to correct the situation. Nonetheless, as we formally show, the existence of high transaction costs, including high litigation costs, ensures that many wrongly granted patents continue to survive in the market and to produce inefficient results in the economy. Thus, when it comes to ignorance in the patent system, the key question is not the rational ignorance of the agency; rather, it is the agency's optimal ignorance. As policy makers, we can be ignorant of the prior art to the extent that we set the marginal investment in information-gathering by the PTO to be equal to the marginal reduction in social costs from granting better patents. In addition, an optimal ignorance approach may suggest why it is more likely that the PTO is subjected to bounded rationality, rather than rational ignorance. Optimal ignorance requires the PTO to assess the full social benefits of acquiring more information and weighing them against the social costs. For reasons we have suggested, the social benefits of a patent may be amorphous, resting on understandings of progress and non-obviousness. For this reason alone, we might expect the PTO to be subjected to cognitive and information limitations with respect to its role in distinguishing between deserving and undeserving patents. Furthermore, if the PTO is, in fact, subject to bounded rationality for the complex problems in assessing benefits, Professor Lemley's arguments against administrative reform and in favor of judicial review are weakened. Professor Lemley's arguments lead to the following problem. If the PTO is engaging in rational ignorance, then it is not satisfying its mandate, and reforms that ensure optimal ignorance are desirable. If the PTO is acting out of optimal ignorance, then the case exists that the agency is subject to bounded rationality, thereby supporting reforms to cure it of its cognitive and informational limitations. Either way, the case for administrative agency reforms is justified and needs to be more fully and properly addressed.