How Do Patent Laws Influence Innovation?

by Michele Vrouvas

Patent laws in the United States have existed since the country’s founding but today remain a subject of controversy. Supporters say the laws spur innovation by guaranteeing inventors a limited-time monopoly on their discoveries. Opponents say the laws actually discourage innovation and claim the patent system is broken. How patents affect innovation matters to public policy. If the laws do not create incentives as the Founding Fathers intended, some economists and legal scholars say it is not clear what purpose they serve.

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The Historical Debate

Americans have long debated how patent laws influence innovation. The U.S. Constitution made patent laws official on the theory that inventors would invent if promised exclusive rights to their discoveries. But Founding Father Thomas Jefferson later admitted that countries without patent laws produced as many inventions as those with patent laws. Nineteenth-century patent supporter Abraham Lincoln said the laws “added the fuel of interest to the fire of genius.” Yet, by the 1930s and 1970s, some business leaders blamed patents for creating monopolies that worsened economic depressions by stifling individual inventors.

In Support of Patent Laws

Proponents say that patent laws have established a win-win situation. Researchers at the Massachusetts Institute of Technology explain that, in return for inventors disclosing their expertise, society rewards them with significant financial gains. The rewards encourage investors to fund experiments and inventors to improve existing technology. According to economist Petra Moser, the rewards are profitable enough to influence the rate and path of innovation in certain industries. More pro-patent findings appear in a 2004 study, prepared by the Organisation for Economic Co-Operation and Development, that concluded the right patent laws helped small businesses enter new markets and compete for financing opportunities.

The Arguments Against

Opponents argue that patents are unnecessary and counter-productive to innovation. Researcher Bill Tomlinson tested the pro-patent theory in an experiment that simulated the patent system. He concluded that patents actually deterred innovation among study participants who said they were motivated by other market incentives. More support for the counter-productive argument came from economist Michele Boldrin who studied how patent laws affected eighteenth-century steam technology. Boldrin found that inventor Richard Trevithick, who did not seek patent protection, developed a steam engine that was superior to the famous patent-protected device of James Watt.

A Broken Patent System

The Electronic Frontier Foundation maintains a website to create awareness about what it believes is a dysfunctional patent system. According to EFF, the U.S. Patent and Trademark Office, which oversees the patent application process, regularly awards patents for undeserving inventions. These patents are then purchased by large companies, known as “patent trolls,” that use them to hinder research by smaller companies. Small businesses will not invest the money needed for experimentation and patent application knowing that patent trolls will involve them in lengthy and costly legal battles.