PATENTS AND CLIMATE CHANGE: A SKEPTIC'S VIEW.

• Author: Tur-Sinai, Ofer

1. INTRODUCTION 212 II. CLIMATE CHANGE AND 217 TECHNOLOGICAL INNOVATION III. PATENT INCENTIVES FOR 225 CLIMATE CHANGE TECHNOLOGIES A. General 225 B. Nonmarket Goods: 227 Basic Research C. Upstream Innovation 229 D. Technological Solutions 233 Designed for Businesses E. Consumer End-Products 236 F. Technological Solutions 244 Addressing the Needs of Poor Populations G. Highly Nonexcludable 245 Innovation H. Low-Tech Solutions 247 IV. IMPLICATIONS 249 A. Awareness 249 B. Resort to Alternative 251 Incentive Mechanisms C. Demand Side Intervention 257 V. SUMMARY 260 I. INTRODUCTION

   Climate change is happening here and now, and is regarded by many as the denning challenge of our time. (1) The main driver of climate change is greenhouse gas emissions from human activities. (2) The global challenge posed by climate change has occupied many scholars from different disciplines and triggered various policy measures and proposals in recent decades. Most recently, at the Paris climate conference in December 2015, representatives of 196 countries adopted an agreement in which they acknowledged the severity of this problem and undertook radical steps in order to resolve it. (3)

   Among other things, there is a growing emphasis on the need to develop a broad range of technological solutions that may assist in reducing greenhouse gas emissions or otherwise mitigating or adapting to climate change (hereinafter collectively referred to as "climate change technologies"). Unsurprisingly--considering the central role that patents play in innovation law and policy as a general manner--innovation scholars and policy makers have relied extensively on patents to incentivize the development of climate change technologies. (4) Discussions of patent policy in the environmental domain generally assume that patents can provide incentives for the development of "green" technologies; thus, they focus primarily on potential restrictions on access to patented technologies and the concern that patents would inhibit the transfer of relevant technologies to developing countries. (5)

   While a continued deliberation of the means to ensure broad access to green technologies is undoubtedly warranted, this Article nevertheless focuses on the incentive side of the equation and seeks to evaluate the way the patent system functions in promoting the development of climate change technologies. Although there is evidence that the number of patent applications for environmental technologies has increased significantly in recent decades, (6) this by no means indicates that environmental innovation occurs at a socially optimal level or that the patent system functions effectively in this domain. In fact, the analysis included in this Article demonstrates that patents most likely underperform--in various important ways--in fostering environmental innovation and thus cannot be trusted to adequately promote the development of climate change technologies. While the analysis focuses on climate change technologies, many of the insights have a more general applicability and could be relevant with respect to technologies designed to deal with other environmental concerns.

   As demonstrated in the Article, one of the main reasons why the effectiveness of patents as an incentive mechanism in the environmental domain is limited is the reliance of patent incentives on market demand in directing innovation. (7) To start with, a market-based platform clearly cannot be relied upon to incentivize production of nonmarket goods. (8) In the environmental context, this inherent limitation of the patent system comes into effect, for instance, with respect to basic scientific research regarding various fundamental questions related to climate change. (9) Yet, even outside the realm of pure basic research, the more upstream a research and development (R&D) project is--i.e., the more removed it is from commercial applications--the higher the uncertainty regarding the market value of such project is likely to be, and the less probable it is that the patent system would provide ample incentives to pursue it. (10) Thus, for instance, R&D endeavors designed to explore methods of employing various alternative energy sources in lieu of fossil fuels--which may later serve as the foundation for a wide array of downstream innovative efforts--are not likely to be adequately incentivized by patents. (11)

   Unfortunately, in the context of environmental innovation, the concern that the patent system fails to provide adequate incentives to innovate applies to downstream innovation as well, since market demand tends to underrepresent the social value of green technologies. A cleaner environment constitutes a public good; hence, positive externalities play a significant role in undercutting demand for green products and processes. In deciding whether to purchase and install a pollution-reducing scrubber, for instance, a profit-maximizing firm is likely to focus on its direct costs and benefits, while not ascribing much weight to the substantial beneficial impact on numerous third parties that such a step may yield. If businesses are not willing to pay for climate change technologies a sufficient amount of money that reflects their social value, then the patent system--in its reliance on market demand--is not likely to incentivize development of such technologies at a socially optimal level. (12)

   While the concern that businesses' demand for green technologies underrepresents social value has been noted in innovation literature, (13) this Article highlights that this is true with respect to individual consumers as well. Due to the existence of positive externalities and a variety of other factors explored in a growing body of interdisciplinary work, it appears that consumers cannot be trusted to sufficiently account for the ramifications of their choices on the environment. This may ultimately have a significant impact on the ability of the patent system to incentivize the development of both green consumer products and more upstream technologies, the demand for which derives from the demand for end-products. (14)

   One other factor that may dilute the signal of social value produced by a market-based platform for incentivizing innovation is the inability of consumers to pay for various innovative products and services. Some low-income consumers--including developing countries in their capacity as consumers--may lack the means to pay for climate change technologies, even if they were otherwise willing to do so. This may be highly problematic regarding solutions that are required to address the particular needs of poor populations--for instance, an innovative product or process that would assist a country with a significant reliance on the agricultural sector to adapt to increasing temperatures. Such solutions would never be developed if we only relied on patent incentives. (15)

   One other reason explored in the Article for the inability of the patent system to adequately promote green innovation derives from its reliance on a mechanism of exclusive rights. Some types of innovations are more difficult to exclude than others, and patent incentives have limited effectiveness in promoting highly nonexcludable innovations. This may be the case, for instance, with respect to certain industrial processes that are designed to "green" production of manufactured goods. To the extent that the use of such a production process by competitors of the patent owner can be kept in secrecy and is not embedded in the final product, it might not be possible to detect and prove infringement. As a result, patents may fail to serve as an effective incentive mechanism in this context as well. (16)

   Finally, the Article explores the possibility that, by focusing on technological products and processes that meet the statutory patentability criteria, the patent system may divert resources away from engaging in the development of low-tech innovations (e.g., a method to improve efficiency of water use by proper irrigation scheduling) or non-technological innovations (e.g., creative methods to enable people to reduce consumption) that may be highly valuable in mitigating and adapting to climate change. (17)

   For these reasons, this Article concludes that patent law is far from being an ideal incentive mechanism in the context of climate change innovation. Notably, the problems identified in the Article cannot be addressed by adjusting patent doctrine or revising the patenting process, because they derive from the very nature of the patent system as a market-based private property mechanism to incentivize innovation--and the market (by hypothesis) does not exist or is inefficient in ways the patent system cannot cure.

   The Article explains the importance of being aware of these limitations of patent incentives and cautions against "greenwashing" in presenting the role of the patent system in this regard. (18) Beyond that, the Article explores two principal directions that may need to be pursued in order to bolster incentives to develop climate change technologies. First, in the specific contexts where patent incentives significantly underperform, the analysis supports increasing the use of other policy instruments for incentivizing innovation, including prizes and direct governmental funding via grants, cooperation agreements, or procurement. (19) As these mechanisms do not rely on market demand in incentivizing innovation, they may outperform patents in the specific domain of green innovation, where market demand so clearly fails to align with social value. The Article explores various manners by which policy makers can prioritize the need to develop climate change technologies within such schemes. (20) Second, to the extent the state continues relying on patents to incentivize environmental innovation, it must operate the patent system in tandem with other policy measures designed to increase market demand for climate change...