This morning's post on patent reform inspired dozens of responses. Among those responses, a few points were raised often enough that I think I should clarify them.
First, contrary to the assertions of several posters, we really do get a better social bargain when we fork over a million dollars in tax money instead of a million dollars in monopoly profit. Here's why: When drugs are cheaper, more people use them, and that's a boon. Here is a numerical example, in case you like that kind of thing.
For what it's worth, this point is standard fare in any Principles of Economics course. One of my most-used exam questions is True or False (and explain why): If the customers of a monopolist could bribe him to sell at a competitive price, both they and he would be better off. The answer is true, and students who want to pass the course had better be able to draw the diagram that proves it.
Next, some people worried that the Kremer proposal does nothing to alleviate some of the fundamental problems of the patent system---like the granting of patents for obvious innovations like double clicking. On the contrary---putting these patents in the public domain undoes a big part of the damage. Now everyone can double click no matter who initially got the patent.
Of course we haven't undone all the damage; we'll still have smart people wasting their time coming up with stupid inventions to patent. But the current system has exactly the same problem. In fact, quite a few of the objections raised to Kremer's proposal apply equal well to the current system, and are therefore no reason to prefer one over the other. For example, one poster complained that in the Kremer plan, the government would be the sole arbiter of patent grants. As opposed to what we have now?
A more cogent objection came from those who complained that we should not all be forced to share the costs of an invention that only some of us use. As a hardcore libertarian, I am sympathetic to the sentiment. But I also believe---though I cannot currently prove---that the system Kremer proposes would generate so much extra social value that almost everyone would eventually win. I'll subsidize your Lipitor; you subsidize my Rogaine, and we can both come out ahead.
Another cogent objection came from those who worry about inventors who have specifically devised a product they can use more effectively than anyone else. We don't want to yank that product away from them. The poster Byomtov made some excellent replies to this and other issues, but I'm willing here and now to modify the proposal as follows: First, the government offers to pay not the winning bid, but 1.25 times the winning bid; Kremer endorses this on the ground that an invention in the public domain has more social value than an invention in private hands. And second, if the inventor wants to turn down that offer and keep his invention, we'll let him.
That also solves the problem of inventors who feel shortchanged because the benefits of their inventions lie in the far future. If they'd rather hold onto their inventions and take the risk of distant success, that's fine. The downside of allowing this is more monopoly power, but the goal here was a drastic improvement, not perfection.
Finally: Several posters thought that in an auction with only a 50% chance of being consummated, investors will tend to either double or halve their bids. To clarify the issue, suppose you go down to the car dealer to buy a Lexus, for which you are willing to pay $30,000. But you've heard that there's a 50% chance the Lexus is out of stock. Which of the following is correct?
A) You are now willing to pay $60,000 for a Lexus.
B) You are now willing to pay $15,000 for a Lexus.
If your answer was "none of the above", you get an A. The application to patent reform is left as an exercise for the reader.
A patent is saying you own an idea, not a property. I can prevent people from building Victorian houses, even though the get all the materials themselves, if I had a patent on the idea of Victorian houses.
Owning property does not necessarily give you a monopoly.
Not exactly. Patent infringement can occur both unknowningly and innocently. A person can independently invents something infringes on the patent.
I would also point out that "property rights" should not be confused ownership by a single entity or individual (or even a small group of individuals).
Not exactly. Patent infringement can occur both unknowningly and innocently when a person independently invents something that infringes on the patent.
I would also point out that "property rights" should not be taken to imply ownership by a single entity or individual (or even a small group of entities/individuals).
But the patent act actually says that patent rights are property rights, correct?
Montie,
The same is true with property rights, correct?
I don't know about that. If I create a widget using my own work with raw materials and tools that I own, I usually assume that I own it and can use it (or sell it) as I choose.
However, if there are patents, I have to go through a costly determination of whether my widget infringes on a patent. If it does, I must either desist or compensate the owner of the patent.
I will agree with you that patents could be a form a property right. However, they have some nuances with patents that should be considered.
But you're assuming that my general assumptions about property rights are the same as yours -- something that you don't know. My assumption is that property rights are transferable rights to exclude others. In the case of patents, a patent gives the owner a right to stop others from coming onto the intellectual "space" of the invention. Sure, it's not physical space, it's virtual space, but it's the same idea, at least to me.
I repeat my question. Using antitrust principles that apply to monopoly, monopolizing, monopolists, what relevant market does a patent control.
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The metes and bounds of the patent property are defined by the claims in the patent "deed." The metes and bounds of real property are defined by the geographical description in the land deed.
Unauthorized entry, trespass, on to the patent property is patent infringement.
Unauthorized entry on to the real property is trespass, an infringment of the owners property rights.
The first example appears to depend upon perfect information, perfect collective action in the form of tax spending, and zero fixed costs other than R&D (as well as some other potential problems). It seems to me that assuming perfect collective action is far less realistic than assuming the monopolist is a successful price discriminator. Assume, then, both perfect collective action and perfect price discrimination:
The monopolist will sell 10 pills at $20 and 10 pills at $5 for a total of $250. To garner that revenue, the monopolist will spend R&D + other fixed costs + $1(20). So his net profit is $230 - R&D - OFC, the public has spent $250 for 20 pills, and society as a whole has spent $20 + R&D + OFC for 20 pills.
Now, assuming he sells the right to the drug at the same functional price (profit considering only short-run expenses), the market will end up bringing the pill price again to 1. The public will now pay $270 for 20 pills ($20 more for the same number of pills). Although the public is certainly worse off, society as a whole is going to be much worse off, as it will have to incur multiple instances of OFC to garner the same 20 pills.
Similarly, there are virtually certain to be different incentive effects for each of the possibilities, and those will have very real consequences. For instance, what is to stop monopolists from disbanding corporations once the medicine is sold (and before it hits the market), thereby shifting all long-term liability over to the public at large -- presumably thereby reducing the incentive to research and address long-term problems. Likewise, I don't know how the monopolist and the government would negotiate the price of the medicine. Surveying for values is notoriously inaccurate, and (presumably) there is no history of sales for this drug. So the sales price is going to reflect hype and negotiating ability much more than the net total demand value; while this may be true in any case, the monopolist's situation is even more divorced since he knows he will never need to face the actual market, only government bean counters.
Obviously, the problem is that assuming perfect market conditions (either in whole or in part) distorts the outcomes.
The second economics example suffers from a similar ailment. If the consumers could (collectively) bribe the monopolist, then those are a unique set of consumers. In such a case, the monopolist may have no choice but to offer a competitive price -- with or without the bribe -- because the perfectly coordinated consumers have just as much market power as the monopolist does.
Anyway, I presume I am making bevies of mistakes, so I invite someone to explain to me the basic economics principles I am missing.
I am also not sure why in the auction the current owner of the patent should not bid an extremely large sum, let's say for laughs $55 trillion since that is the estimated net worth of all Americans. After all, if the current owner wins the coin flip the money is just paid to itself; if it loses the coin flip, the government has to come up with $55 trillion, or actually $110 trillion to take into account Kramer's "markup." (Note: I have only read his abstract, not being willing to pay to download a paper about which I have such strong suspicions.)
I would expect companies that conduct research in products are more knowledgable of what the true value of the invention may be (from monopolizing the product). So we may have a lemons problem arise. A company is more likely to offer up inventions with low value than those with high value. This will mean the really valuable inventions - those with a large cost of monopoly - are even less likely to be the ones your system solves.
To make an informed bid, each bidder will have to incur significant costs. They might share, but I suspect that that will be discouraged.
Let's say that due-diligence costs $10M. (I suspect that the number for drugs is typically higher.) If they're guaranteed to lose 50% of the time and may lose anyway, their rational bid goes is less than it would be if they only had to worry about higher bidders. If the guaranteed loss rate goes up to 90%, it gets worse.
The costs of administering all this would be tremendous, and the inefficiencies very large.
For a libertarian, you sure are into correcting collective action problems.
You did use LaTeX to make the PDF, though, which counts for something.
The other fault that I see, also alluded to by a previous poster, is that much of the clinical testing costs come after the patent grant. They are only justified by ownership of the patent. So, if the patent is in the public domain, there is no chance for monopoly prices, and thus no realistic reason for spending the money on clinical testing, and thus, no reason to bring the product to market.
So, if the govt. bought half of a company's patents, it would spend its money on the other half, since those are the products can cover all its R&D, etc. costs, and will ignore the half of the patents that it didn't get. Since the patentable R&D is spread over fewer products, they have to be priced a bit higher to cover this. So, you would have approximately half the drugs brought to market, and those would cost a little more.
But another situation is where you have a brand new product that has maybe 15 quasi-blocking patents. So, the company with the product (X) needs to have at least one of the patents (to prevent competition), but cannot afford to let any competitor (Y) have even one of them. But if the competitor (Y) knows all this, all it needs to do to screw the first company (X) is to manage to buy just one of the patents. So, it has an incentive to bid them up. A lot. If it wins the bidding, it can prevent the original company (X) from making, using, or selling the product. But if it (Y) loses, that company (X) has to pay the bid price. So, if the government is going to buy half of them, then the first company is going to have to buy the rest. And it has to do it at a price as if it were the only patent required to block, but has to do that 7 or 8 times.
It may sound weird, but I am workng on just this sort of project right now, and have been doing so every couple of years for quite awhile now. Half the patents falling into the public domain is not that traumatic. But just one falling into the hands of a competitor would be.
The worse the odds of the auction being "real", the fewer the people who will participate in it. The fewer competitors in an auction, the lower the sale price. The only way to avoid this is if there is no cost to participating in the auction. In the case of a complex patent, there will always be a significant cost associated with bidding.
FYI: This is one of the snottiest lines professors put in their textbooks. It's one of the reasons that busy lawyers regularly mock academics, and just don't use their materials that much.
Don't be such a sissy. Write down what you think the answer is.
Thanks for your posts, and for your books. Can't wait to read this one. As soon as I get a job and can afford to buy it. (Cf. Landsburg, S. E. Fair Play, "Any book worth reading is a book worth buying." Ok, that was shameless. Sorry.)
JAB
Previous Commenter,
There's irony in an anonymous commenter calling anyone "sissy." He was making a point about people who commented without thinking. Learn from it. Don't just be a pain in the gluts. Signed, Joe Bingham
1. The patent holder does not have to auction their patent.
2. If the patent holder does auction their patent, but is unhappy with the results, they may refuse to sell.
3. The government would offer at least double the valuation from the auction.
This means that there is a lower limit on the patent cost, but no effective ceiling. Kremer's solution is essentially to spend crap loads of money and hope that it works out.
You may argue that this situation is a bit contrived, however, I can imagine this to be quite common in certain fields. Software patents come to mind immediately as an area where high value products (large programs) require a large number of patents to function and the inability to use certain ideas can render the products useless. The propensity for patenting every microidea, as well as the increasing complexity of processes that our society can now manage would most likely increase the likelihood of such occurences in the future. Not to mention the fact that if this patent auction system were in place it would encourage people to break down their patents in the hopes of engineering the situation described above.
The analogy between 50% chance of out-of-stockness at the car dealership and a 50% chance of the government stepping in to to buy out the top bidder in an auction: a) proves too much, and b) is broken as to the facts.
Taking part (b) first, if I value what I'm willing to pay based partially on availability (say, I want to part of the in-crowd that owns fancy and exclusive cars), and it later turns out that I was wrong about the availability, then I may change my valuation after I aquire my new knowledge. In the alternative, _I_ may not change my valuation of the Lexus, but assuming sufficient demand, somebody's valuation will be higher that mine and the price will go up.
As to part (a), it's already been noted above and in the comments to your previous post that since the opportunity cost to evaluating and bidding on patents is non-zero, as the chance that the auction will be sniped at the last minute by the government rises, the number of parties will to participate will decrease. This means that the price determined by the auction will probably be less.
I don't think that the effects of (a) and (b) are likely to cancel exactly, and I don't see a rational way to adjust my bidding based on these considerations. This will lead some to increase their valuations, some to hold steady, and some to decrease their valuations which can't be good for the auction market.
All that being said, I think the poster above who actually went and read the Kremer piece has made it clear that the auction is unnecessary. If the inventor need not participate, and can refuse both the highest bid if it's too small and the government offer which may be up to double the highest bid, then there's no need for an auction, since we could simply authorize the government to go around to pantent holders and offer to buy their patents directly on the open market. Those who would participate in an auction would be the same who would be willing to sell directly, and their price would be identical. Those who would not participate in the auction would not sell directly for the same reason.
Is it possible that to lawyers, the idea that their services cost too much is simply incomprehensible?
Set the tax at something like 0.3% per year, with the patent holder stating the value of the patent. The patent holder can increase or decrease its stated value and pay the tax accordingly at any given year during the patent's validity. Don't pay the tax within a grace period of the deadline, and the patent expires into the public domain.
The stated value of the patent as of the previous year will be the maximum you can sue for infringement of the patent. Anybody you sue has the option to pay you the full stated value of the patent and obtain a perpetual license to use it.
Sure, if market actors freely decide to compensate monopolists for their monopoly profits, we all come out ahead. But that's not the proposed system. The proposed system is public spending with money paid for via a tax.
Professor Lansburg, I suggest you read an excellent book that you may have heard of called The Armchair Economist. In it is a chapter entitled "Why Taxes Are Bad." If you cannot get your hands on it, crack open an intro textbook and read up on how taxation creates deadweight loss. The problem with the example you provided in the PDF is that it looks only at one side of the ledger. It does not consider that to eliminate the deadweight loss created by monopoly pricing, you have to create a deadweight loss through taxation. There's no free lunch here.
Except that the problem with frivolous patents is and will continue to be the costs the public/customers pay for them. People would still patent obvious things, and would still be payed for their patents. The difference is the ultimate source of the money would be taxes, not price premiums.
Now there might be something to be said for the government buying patents on the open market, which, as billb says, is basically what this boils down to. But it probably isn't valid in the general case. And, given imperfect mechanisms of revenue collection, finding the money for it may be more harmful.
if, once they're done, any other company can poach on that work and sell the same product without undergoing the same expense.
You also seem to think that some small number of patents are best exploited by their inventors, if only because those inventors understand his invention best. Now, others can achieve that same understanding, but acquiring it comes at a cost. And, because it comes at a cost, they won't expend the effort if the chance of actually winning both the auction and the weighted coin-toss is too low.
"if the inventor wants to turn down that offer and keep his invention, we'll let him." What?? How is this any different from what we have now? I understand that you seem to think this will apply only in some small number of cases where the patent is best exploited by the inventor. But, I think such cases are a large majority. And, even if they weren't, how could you tell in any specific case?
Maybe another way of saying all this is that it would likely be much more efficient to just leave the money in the USPTO and let that agency spend it improving patent quality, instead of in this scheme to buy some patents for the public domain. It is likely to cost a lot less, and would tend to address the real problems of the patent system, instead of whatever this plan attempts to do. See above. The ultimate source for at least some of government monies involved is the patent applicants and holders through their diverted USPTO fees. This can be seen by the fact that those fees are already replacing tax receipts for the running of other parts of the government. However, this plan is likely to cost much, much, more than the amount already being siphoned off - at a time when raising taxes is politically questionable.
Which brings us to another question - which tax or fee would the government raise to pay for this? Dividend taxes? Capital Gains? Death Taxes? AMT? USPTO filing and maintainence fees? Or, would the government just borrow the money?
The author also appears to not understand the way drug regulatory system works in parallel to the patent system (which is a little too complicated to get into).
Interestingly, most innovative pharmaceutical companies will not proceed with even initial development of a drug compound if they are unlikely to obtain patent protection -- because there is no other way for them to recoup the ~$1 Billion investment it takes to bring a new drug to market.
Anyone who thought the answer was not B may have misread it as "now willing to pay NO MORE THAN $15,000..."
This destroys the poor inventor who creates in his garage something worth a billion dollars. The problem is that the patent is worth a billion dollars because he'll eventually make a billion dollars from it after many years have passed--but the tax has to be paid *now*. You've just vastly increased the cost of entry for this inventor.
This suggests at least two significant negative consequences: (1) the overvaluation of at least some patents at auction in hopes of performing a "hold-up" (see, e.g., $620M settlement in Blackberry litigation), and (2) simple disinterest in disclosing inventions.
You might solve (1) by rendering the patent unenforceable against the inventor, but you can pretty much count on unexpected consequences for that loophole.
(2) is a much more severe problem. Why even bother disclosing the invention and run the above risk? If the inventor is in a good position to exploit the patent itself, why not keep it a trade secret? Also, although more difficult than a patent, it is also possible to somewhat safely license a trade secret if there is a need to more widely exploit the invention. But given the added difficulties and risks in trade secret licensing, one can expect a less robust exchange in cutting-edge techological developments via licensing, etc. Although the invention might be in the public domain so far as lying unclaimed, there is no public disclosure of the technology either. Perhaps the proposal is good for the independent inventor in a garage, but I wouldn't expect large companies to play along with this game.
Additionally, as has been noted to some degree, the disclosure in a patent must be enough to "practice the invention," but is generally not enough to bring a product to market. This problem underlies the passing of the Bayh-Dole of 1980, which controls the licensing of government-owned patents. At the time, thousands of government-owned patents were sitting unused. However, simply placing them in the public domain would have been ineffective, as without patent protection, no company would put forth the needed investment to bring the product to market. The effort is too expensive, and market success too uncertain. For those who actually bring a successful product to market, the reward would be copycats who can simply undercut their price, as they do not have to bear the expense of product development or advertising, etc. required to establish a viable market.
Finally, as has also been noted, a patent is not a monopoly - it is a right to exclude (35 USC 154). The Supreme Court addressed this question head-on in Illinois Tool Works, in which it was noted that a patent does not afford a presumption of market power. Just because one patents one way of accomplishing something does not mean there aren't workarounds. Basically, patents may not quite be the evil presumed by the proposal in the first place.
There is more going on than patents = monopolies = BAD, which seems to be a common economist's worldview. Instead, consider events like the Blackberry case to be market failures. Generally, cross-licensing, etc. work quite well. Try to shape things so that licensing is a more successful mechanism, and reduce the attractiveness of "jackpot" patent litigation.
Another idea: put an annual fee on patents that doubles each year. If you start that fee at, say, $100, your patent only costs $1500 for the first 4 years, $12.7k for 8 years and around a billion for 20 years. The idea here is mostly to prevent patent trolls who sit on patents looking for someone to sue.
One down side to both of my proposals, is that this may have the effect of encouraging the PTO to issue questionable patents. However, they seem to be doing just fine with that as it is.
"[W]e really do get a better social bargain when we fork over a million dollars in tax money instead of a million dollars in monopoly profit." For a libertarian you sure have a lot of faith in the government. The "we" that forks over a million dollars in tax money is not the "we" that buys patented items in the market. I thought libertarians understood market efficiency.
No bureaucracy can determine the value of a patent. Your proposed system would be the equivalent of everybody who invents gets some cash, leave the amount up to your lobbyist. What we have is a much more efficient way to spread around that million dollars of ours. Let the market reward those whose idea has the greatest utility.
“When drugs are cheaper, more people use them, and that's a boon.” So you don’t know much about immunology or epidemiology either.
Patent holders are free to sell their patents right now on the open market. We can expect the current price will be in excess of the proposal price since the current price includes monoplistic pricing opportunities. If patent holders do not now accept this higher price, what incentive would they have to accept lower prices under the proposal?
No bureaucracy can determine the value of a patent. Your proposed system would be the equivalent of everybody who invents gets some cash, leave the amount up to your lobbyist.
Lansburg's proposal has its problems, but this is not one of them. I suggest you re-read the proposal carefully.
The value of the patent is determined by the market. The patent is auctioned in the open market to determine its fair market value. A moment before the winner can pay for its purchase, the government flips a coin. If it comes up heads, the winner pays the inventor for the patent. If it comes up heads, the government pays the inventor the same amount and releases the technology to the public. At no time does any bureaucrat set the price.
This is not to say there are no transaction costs, souces of friction, barrierst to entry, or reasons that the auction price may be a bit artificially low. But the government does not choose a price.
If it is so obviously worth a billion dollars that the inventor would immediately value it at a billion, then surely it must be able to able to attract investors who would provide enough money up front to pay the tax, in exchange for a piece of that billion when it materializes. So you might say that makes the small inventor dependent on investors. Well, even in the current system the small investor is dependent on investors in order to turn an invention into a billion dollars.
If it only has a 20% chance of being worth a billion dollars 8 years from now, then it really isn't worth a billion; its real worth is in the region of 20% of a billion further discounted for the 8-year wait. Basing the tax and the limit on lawsuits on the patent's value gives the patent owner incentives to value it honestly according to what it is really worth to them.
After the auction is ended, the patent holder decides whether or not he would like to sell it. If he agrees, the govt flips a coin. With probability p, the auction winner pays his bid for the patent. With probability 1-p, the govt pays at least double the winning bid.
This means the expected payoff for the patent holder, assuming the winning bid is B, is going to be 2B(1-p). This means that the more likely the govt will buy the patent, the more likely the owner will agree to sell at auction close. However, the more likely the govt will buy the patent, the less likely people will be to bid. This causes the expected winning bid B to drop, which makes the patent holder less likely to enter the government auction.
The governments markup will have to account for not only the social value over the private value, but the price depression from the reduced number of bidders. After all, the patent holder could always just hold a private auction where the winning bidder wins 100% of the time.
I also concur with the others who say that you're thinking about drug patents and not looking clearly at other markets, where there are often multiple overlapping patents.
Aren't we back to the problem of infinite bids being rational, at least for risk-neutral investors?
Suppose I win the auction at a price of $1 billion for a patent with FMV of $1. Ninety percent of the time I make a quick $250 million profit (after giving the inventor $1 billion of the $1.25 billion govt payment). Ten percent of the time I lose $1 billion. Expected value is $125 billion profit.
The government is basically offering me 1 to 4 odds (I either win 25% of my bet or lose it all) on a bet that I will win 90% of the time. And it's worse if the patent is worth something, because now I don't lose my entire bet.
I'll pose a counter question and lets see if you can get it right:
True or False (and explain why): If the customers of a monopolist could bribe him to sell at a competitive price, the monopolist will still have the power over the market to abuse their monopoly.
Holding a monopoly isn't always about dollar values. Consider the patent lawsuit of Verizon VS Vonage. Verizon doesn't want Vonage to "pay up". They want Vonage to be completely removed from the market so they can maintain their (near) monopoly on phone service (in their area). It sets a precedent that locks competitors out of the market.
Would bribing Verizon to offer better prices leave us all better off? Hell no. The potential of the technology they're suppressing is far greater than the market in of itself. Imagine if the the development of the Internet were hindered by similar patents. Would we all be better off if we were still relying on AOL? All the bribes in the world to a single, controlling monopoly will never leave you better off than not having a controlling monopoly in the first place.
Not only that, but how can you determine a "competitive price" for a product when there are no competitors!?!
Believing that the patent system in its current state is only about pricing and "inventor incentives" is naive. The scariest areas of patent law involve companies with huge patent portfolios that use them to prevent competitors from entering their market. Then there's companies who own patents but make no products... They simply wait until a sufficiently large businesses is rooted in the market before the sue for the maximum damages.
-Riskable
http://riskable.com
"After its beginning but before it ends
Our life is our children, our parents, and our friends."
The folks complaining about drug prices today have a drug that meets their needs, so they are happy to choke off R&D and demand the price for their drug be set based on marginal costs. The fact that their drug was developed bacause of monopolistic pricing of someone else's drug yesterday is not a concern. Monopolistic pricing is certainly not necessary to provide existing drugs; it is the factor that provides the incentive for developing the next generation of drugs.
Someone above already blasted you for this horribly annoying textbookism, but allow me to pile on.
The determination of the motivation for my snarky post is left as an exercise for you.
That seems to be the key.
If the customers of a monopolist could bribe him to sell at a competitive price, both they and he would be better off.
Lansburg may have stated this a bit inelegantly, so I will rephrase for him, because I know what he was getting at:
"If the customers of a monopolist could bribe him to give up his monopoly power, both they and he would be better off." That's an absolutely true statement that everyone learns in introductory economics.
Without getting into too much detail, the reason is that the monopolist still enjoys his monopoly profits, and consumers enjoy greater aggregate consumer surplus. I think this solves your objections.
Waldensian:
If Lansburg was snotty (which I don't think he was), I think he can be forgiven. He was responding to a very elementary mathematical mistake that a good number of people were making, some of them rather obnoxiously. They were snottily correcting Lansburg's math when their math was incorrect.
Make that $125 million. Hardly worth the effort.
Actually, no. I still don't think making taxpayers foot the bill for the proportion of the value attributable to Rogaine's cosmetic use is comparable to making them foot the bill for Lipitor. And in any event, the OP wasn't talking about the noncosmetic use - he was implying that the cosmetic use of Rogaine and the life-saving use of Lipitor was a fair trade.
Interestingly, your example only underscores one of the biggest problems with the proposal - How do you value something before its potential benefits and risks are known to anything resembling a reasonable degree of certainty?
(I'll shut up now, because I know almost nothing about IP issues.)
I can think of so many ways this system could be gamed. The second price ascending auction is only going to work correctly if you know you must pay. If there is a %50 chance you don't have to pay, you could set up two companies.. one creates a patent.. the other one bids astromical amounts.. etc.
And if you don't think these kind of government hand outs will get even the most fiercest competitors to tactily collude on bidding high for each other patents.. you are crazy.
I think we do need to become much more strict about what is novel and reduce the time frame of protection for many technologies. Luckily, the patent office is beginning to allow peer review of some software patents. Hopfully this trend will continue.