Exploring the Intersection of Patent Law and Environmental Regulations

It is interesting is that though the issue of societal good has been addressed in patent law, environmental utility or “good” is addressed nowhere. Given the landscape of environmental policy in the United States, it is a thought-provoking proposition as to whether patent law should be interpreted or altered to meet the assurances of our country’s environmental regulations seeing as many of them are established at a federal level yet carried out at the state level. For example, should patent law allow an invention or technology to become protected by patent if the direct product or byproduct it creates is tightly controlled or outlawed by environmental regulation? An exploration of this overarching question follows.

Patent Application to Environmental Issues

A predominant driver of our country’s economy is that increases in technological innovation lead to improved standards of living. Despite these economic benefits, some technology creates pollution,

wastes natural resources, and causes other forms of environmental degradation. In his 1990 paper, Gollin argues that “an environmental perspective [on innovation] distinguishes between harmful and beneficial technologies, and discourages the former while encouraging the latter.” In light of this, there are tangible ways to advance environmental protection by promoting innovation in beneficial environmental technology through the reformation of current patent laws.
Without the protections provided by patent law, a market failure in innovation would occur: due to the fear of free riding, individuals and companies would spend less on inventive actions than is optimal, and therefore there would be fewer inventions brought to the market than is optimal. In the absence of patent law, environmental innovation would face the same market failure: individuals and firms would not engage in enough environmental innovation because competitors could free ride on others’ inventive efforts and incurred costs, reducing the incentive to invent. However, environmental innovation also faces a second market failure.
The second market failure results from the positive environmental externalities provided by environmental innovations. Implementation of environmental innovation that lessens pollution, augments conservation efforts, improves remediation, or offers some other environmental benefit has considerable valuable effects for many members of society, most of which are beyond the scope of the firm that creates the innovation. A logical profit-maximizing firm will not implement an environmental innovation unless the firm expects to gain benefit from it in a greater amount than the cost of inventing.
It is this latter market failure that exposes why existing patent law, though providing suitable incentives for most innovation, is not adequate enough to encourage environmental innovation to socially or environmentally optimal levels.

Recommendation: Proposal for a Sustainable Patent System
Recommendation #1: Internalize Externalities
For an intellectual property or patent regulation to provide optimal incentives to inventors of environmental innovations, the regulation scheme will have to solve both market failures: (1) the invention market failure and (2) the positive environmental externality market failure.

Solving the invention market failure is the less daunting problem of the two as existing intellectual property regulations, like patent law, already do this to a significant degree. However, the positive environmental externality market failure presents new difficulties for intellectual property law. Solving externality problems require internalizing the costs and benefits of externalities. Patent law must bring environmental innovators’ incentives to innovate in line with the actual societal or environmental value of their potential inventions. Placing private innovators’ incentives in accord with the social value of innovation will lead private innovators to engage in the socially or environmentally optimal level of

innovation.

Recommendation #2: Disclosure of Trade Secrets
The Trade Secrets Act allows firms not to disclose the composition of their innovations to the public. The use of trade secrets is permitted in the following environmental regulations: Emergency Planning and Right to Know Act; Resource Conservation and Recovery Act; Clean Water Act; Clean Air Act; Federal Insecticide, Fungicide, and Rodenticide Act; Toxic Substances Control Act; and the Safe Drinking Water Act.
Trade secret law does not incentivize environmental innovation. There are two main types of entities that are potential environmental innovators: (1) firms that produce environmental degradation of some form as a byproduct or main activity of their innovation and (2) firms whose primary business is developing products or processes to lessen environmental degradation. For the former, trade secret laws only allow polluting firms to continue their ways in a semi-protected operating state. For firms that do choose to make their processes more environmentally friendly, trade secrets keep these firms from revealing this information to their competitors, despite its benefits. For the latter, trade secret laws disincentive environmental innovations as firms can only profit by disclosing their inventions because their business is selling environmental innovation; they do not seek to keep environmental innovation a secret. Trade secret law as it currently stands will not improve innovation by environmental inventors or firms, nor stop polluting firms from doing so.

Recommendation #3: Lower Patent Standards
Another recommendation is to lower current patent standards in order to increase incentives to inventors. For innovations with environmental benefit, this would most likely require lowering the “non-obvious” requirement of patents, as this is the primary obstacle to patenting environmental innovation. It is the biggest hindrance as many previously patented items could be drastically improved with regard to their pollution output or other form of environmental damage with small changes to a currently patented product. As it presently stands, these small changes, would make the altered item non-patentable as it would be classified as “obvious” because it was not drastically altered enough to warrant a patent.

Recommendation #4: Environmental Patent Reward System
Multiple scholars have suggested a patent reward system, and this recommendation would require a substantial shift from present patent law. Under a rewards-based patent system, the government obtains the rights to patentable innovations. The government then financially compensates the inventor directly in exchange for these rights and in place of granting them a patent. The invented product is then made available for use to the general public, either for free or for a nominal fee. Under most patent rewards suggestions, government compensation to the inventor is based on the inventor’s expected profit. For environmental innovations, compensation to the inventor could also be based on the expected environmental externalities provided to society by the invention, in addition to the expected profit.
An alternative to direct compensation to the inventor would be the creation of a sustainable or “green” patent trust fund. This patent system would put a share of patent-related money (e.g., license royalties, fees, and patent infringement fines) into an environmental trust fund. The funds from this trust would be used to provide financial aid to other individuals or firms in order to offset the cost of royalties for environmentally-friendly technologies. The funds could also be used to provide low interest loans or grants for the acquisition and making of such technologies. The environmental innovation would still be granted a patent for protection, but the trust fund would incentivize more purchases of the environmental innovation, increasing the revenue of the inventor.