How can patents pay inventors without blocking an industry?

The bargain in early patent statutes

Venice’s statute of 19 March 1474 is often described as the first general patent statute. It offered ten years of protection for “any new and ingenious device, not previously made,” provided it was useful. The Republic logged well over a thousand petitions across the following century. The inventor received a limited period of exclusivity in exchange for disclosing the device.

England addressed a different abuse about 150 years later. The Crown had issued monopoly grants for ordinary commodities such as salt and starch, whether or not the recipient had invented anything. Parliament’s Statute of Monopolies (1624) restricted patents to original inventions and fixed terms. In the League’s reading, the Venetian statute used limited exclusivity to encourage disclosure and investment, while the English statute limited monopoly grants disconnected from invention. Neither document supplies a universal design for modern patent law.

How patents can block production

A race to secure exclusive rights differs from a system in which a patent holder earns mainly by making production expensive. Two historical cases show how collective licensing changed the terms.

A modern patent thicket contains enough overlapping rights that a manufacturer may need several licenses before it can sell a product. Bessen and Meurer estimated the direct cost of disputes with non-practicing entities, firms that earn mainly by asserting patents rather than selling related products, at $29 billion in 2011. Their estimate covered 5,842 defendants, most of them small and medium firms, and they found that little of the money reached small inventors. The estimate is contested because it relies on a survey by RPX, a company that sells patent-risk services, and it excludes indirect costs. It is best treated as a disputed estimate rather than a complete cost account. The concern here is payment driven by the cost of defending a claim, not the value of using the invention.

Standards create a different problem. ETSI, which develops cellular standards used in 4G and 5G, asks patent holders to declare patents that might be essential. Studies have found that fewer than half of declared-essential patents are essential, with published estimates for 5G between 10% and 20%. A payment system based on declared patent counts gives holders a reason to over-declare. Standards bodies use FRAND commitments, promises to license on “fair, reasonable and non-discriminatory” terms, to limit that problem. Because “reasonable” was not fixed in advance, courts have had to define the negotiation process and rates. The Court of Justice of the European Union set out negotiation steps in Huawei v. ZTE (2015). UK courts set a global royalty rate in Unwired Planet v. Huawei, a decision upheld by the UK Supreme Court in 2020.

The Bayh-Dole Act, the 1980 law that lets universities and contractors patent federally funded research, includes “march-in rights.” The government may require additional licenses when statutory conditions are met. In more than four decades no federal agency has exercised those rights, and the NIH has denied every march-in petition it has received, including petitions concerning the prices of Norvir and Xtandi. A power that has never been used may have little effect on licensing behavior.

What patents can provide

A granted U.S. patent publishes claims and a technical specification. Under 35 U.S.C. § 112, the specification must describe the invention in enough detail for a person skilled in the field to make and use it. Individual patents still vary in clarity and practical usefulness, so “published recipe” is too strong a description. McLean’s container patent, U.S. 2,853,968, is available to anyone with a browser. Unlike a trade secret, its claims and specification remain public after the exclusion period ends.

Temporary exclusion can also help a young company obtain financing. Patent applications are assigned to examiners in a process that is close to random, and examiners differ in leniency. Farre-Mensa, Hegde, and Ljungqvist tracked 34,215 first-time startup applications through those assignments. Startups whose first patent was granted showed 55% higher employment growth and 80% higher sales growth over the following five years. The authors attribute much of the difference to improved access to venture and bank funding. The study supports a financing effect for first patents at young firms; it does not establish the ideal patent term or licensing rule for every industry.

Patent holders can also license broadly to encourage adoption. McLean made his container patents available royalty-free during ISO standardization so competitors could build compatible equipment; the profile documents that history. The 1856 sewing-machine pool and the 1917 aircraft pool also placed multiple patents under a common licensing arrangement, although they arose under different pressures and used different terms.

Available policy and licensing tools

The following tools have been used or proposed in different settings. They solve different problems and depend on different laws, markets, and administrative institutions.

• Statutory flat rate. In 1909, concerned that piano-roll reproduction could consolidate under one company, Congress created a compulsory mechanical license for published songs. A new recording could be made under the statute if the user followed its conditions and paid the set rate. The rate began at two cents per copy and did not change until 1978. A statutory rate therefore needs a credible review process.
• Private flat rate at the interface. Avanci licenses cellular patents from dozens of holders to carmakers at one per-vehicle price: $15 when its 4G program launched in 2017, $20 from 2022, and $32 for its 5G program. Avanci reported that its licenses covered more than 275 million vehicles as of March 2026. The carmaker pays once per vehicle regardless of how many covered patents or components it uses. Because the total charge is tied to the vehicle rather than the number of declared patents, adding another patent does not increase the bill.
• Buyouts. France bought the daguerreotype patent in 1839 and put photography in the public domain. Kremer’s 1998 mechanism generalizes it: auction the patent to discover its private value, pay the inventor that value times a social markup, and release most purchases into the public domain.
• Prizes and commitments. An advance market commitment promises, before a product exists, to buy it at a set price if it meets defined conditions. Donors committed $1.5 billion to a pneumococcal vaccine program in February 2007. The program launched in 2009 and contracted with GSK and Pfizer at $10.50 per three-dose course. Gavi, the vaccine alliance that administered the program, reported that more than 215 million children had been immunized by the end of 2019. The contracts tied payment to qualifying vaccine supply rather than control of downstream research.
• Proposed self-assessed pricing. Posner and Weyl propose in Radical Markets (2018) that a patent holder name a license price, pay a recurring fee proportional to that price, and license at the stated amount. Under the proposal, setting a high price to deter use would also increase the holder’s recurring fee.

The League’s recommended approach

The League draws the following policy suggestions from these cases. Each would require legal and economic review for the industry and jurisdiction in which it would operate.

• Products with documented development costs. Retain a period of exclusion when evidence shows that copying would otherwise prevent the inventor from financing development. Any shorter term, price review, or compulsory license needs published criteria and a defined decision-maker.
• Technology included in a shared standard. Require a blanket license priced per product unit, with the rate reviewed on a fixed schedule. The Avanci example shows one private version of this structure; applying it by law would raise separate questions about rate setting, appeals, and competition.
• A defined outcome known before research begins. Consider prizes, advance market commitments, or patent buyouts. The pneumococcal vaccine program shows that an advance commitment can operate at scale in one field. It does not establish the right contract for every research target.
• An open interface supported by an operating business. Some builders can license an interface broadly and earn from implementation, manufacturing, support, or services. McLean and Hock illustrate different versions of that approach, not a rule that applies to every inventor.
• Granted patents that are held without active use. Test self-assessed pricing as a possible backstop. It remains a proposal and would need rules for valuation, challenges, and compulsory licensing.

The patent-assignment study supports the value of an early patent for some young firms. It does not show that the rest of this package would preserve that benefit, nor does it identify the correct exclusion period. A per-product pool may reduce incentives to inflate patent counts, but it still requires a defensible rate and a process for deciding which patents belong in the pool.

The 1909 mechanical license, Avanci’s vehicle pool, and Gavi’s vaccine contracts show that each tool can operate in a particular setting. They have not been tested as one combined system. A complete proposal would need to name the jurisdiction, covered patents, rate setter, review schedule, appeals process, and evidence used to change the terms.

Sources: Venetian Patent Statute (1474); Primary Sources on Copyright: commentary on the 1474 statute; Statute of Monopolies (1624); Wikipedia: Manufacturers Aircraft Association; Katznelson & Howells, “The myth of the early aviation patent hold-up” (Industrial and Corporate Change, 2015); Wikipedia: Sewing Machine Combination; Mossoff, “The Rise and Fall of the First American Patent Thicket” (Arizona Law Review, 2011); Bessen & Meurer, “The Direct Costs from NPE Disputes” (Cornell Law Review, 2014); 17 U.S.C. § 115; Avanci Vehicle; Avanci: more than 275 million vehicles covered (March 2026); Avanci 4G rate change (2022); CJEU, Huawei v. ZTE, C-170/13 (2015); Unwired Planet v. Huawei, [2020] UKSC 37 (summary); Brachtendorf, Gaessler & Harhoff on declared essentiality (JEMS, 2023); CRS, “March-In Rights Under the Bayh-Dole Act”; U.S. patent 2,853,968 (McLean); Farre-Mensa, Hegde & Ljungqvist, “What Is a Patent Worth?” (Journal of Finance, 2020); Kremer, “Patent Buyouts” (QJE, 1998); Gavi: pneumococcal AMC; Gavi: pneumococcal vaccine support; Posner & Weyl, Radical Markets (Princeton, 2018).