Quote: “Basic scientists have never been entitled to a monopoly on their research; in modern times this research is heavily subsidized, but Newton, Darwin, and Einstein received neither intellectual monopoly, nor government subsidy”.( Boldrin & Levine page 19)
This million dollar question in the title has been a topic of debate for almost a century. Half of us are in favor of the system while the other half openly despise the system. The system too has its set of flaws that totally justifies the stand of those against it.
But does that mean patenting system stifles innovation?
Innovation, most people can agree, is a good thing. Continued advances in technology are critical for the long-run growth of the economy and rising living standards. The tricky thing is figuring out how to best promote innovation. One well-trodden policy tool is giving the creator of a new technology or process an incentive by providing her with a monopoly over the invention, also known as a patent. ( Citation from Nick Bunker )
Before we can find an answer in the literature on this we first have to define the concepts innovation and patents.
I consulted some dictionaries to find out what “innovate” and “innovation” really means.
Make changes in something established, especially by introducing new methods, ideas or products (Oxford Dictionary)
Innovation comes from Latin “innovare” for renew, whose root is “novus” or new.
The same for patents
The word patent originates from the Latin patere, which means “to lay open” (i.e., to make available for public inspection).
A patent is a set of exclusive rights granted by a sovereign state to an inventor of a new method, substance or mechanism. This exclusive right is granted for a limited time period (mostly 20 years) following the submission of the patent application and forbids others to use the patented method, substance or mechanism without the permission of the patent owner.
Patents are legal instruments intended to encourage innovation by providing a limited monopoly to the inventor (or their assignee) in return for the disclosure of the invention. The underlying assumption is that innovation is encouraged because an inventor can secure exclusive rights, and therefore a higher probability of financial reward in the market place. The publication of the invention is mandatory to get a patent. Keeping the same invention as a trade secret, rather than disclosing it by publication, could prove valuable well beyond the time of any limited patent term, but at the risk of congenial invention through a third party.
What we can read about it?
As early as 1986, from a famous study by Mansfield et al (cited over 1600 times), empirical research into the effect of patents on innovation found “its effects in this regard are very small in most of the industries studied”.
A random selection of 100 US firms was chosen from twelve different industries. In conclusion it says that patents were only relevant in relation to innovation for two industries (Chemistry and Pharmaceutical). In addition many economists seem to believe that patent protection tends to be more important to smaller firms than to larger ones. Although the patent system seems to have a relatively small effect on most industries, this does not mean that firms make little use of the patent system. In the two above mentioned industries 80% of all inventions are protected by a patent.
Despite the fact that the patent system generally is defined to increase innovation this study is indicating that there is only a small effect.
Of interest is whether a more recent study is available and is there any information available from other countries as well?
An important study in this regard was published in 2006 by the France economist Leveque (link), leading to more or less the same conclusions that both pharma and chemistry are the sectors with the most benefit from the patent system
However we must keep in mind that patent stimulates innovation differently from one sector or one technology to another. There is not a universal effect of patents.
A poll on the website Debate.org on the question “Do patents hinder growth and innovation within society?” gives a 71% yes and 29% no. Although it is not clear who did vote (link).
A confirmation on this will be the publication of a book by James Bessen and Michael J. Meurer presenting a careful empirical analysis of whether patent rights encourage innovation. Their conclusion: for the most part, today’s patent system does not achieve its stated goal.( link )
A lot of information on this topic is available on the Internet, with argument pro and contra the stimulation of innovation by patents. (See for instance IPWatchdog or Kaufmann Foundation or Phys.org blog)
A general conclusion cannot be drawn about whether patents stimulate innovation. Some publications intend to answer this question negative while others are more positive.
Maybe the answer is somewhere in the middle as stated by Petra Moser in 2016 by putting everything in historical context:
When patent rights have been too broad or strong, they have actually discouraged innovation. (Link Annu. Rev. Econ. 2016. 8:241–58 ) And yet the connections between patents and innovation are difficult to identify empirically, and the predictions of economic theory are somewhat ambiguous.
It has often been said that countries that have a strong patent system have much more diversification in innovation when compared to countries with a weak patent system, saying in other words that less developed countries has lower stimulation of innovation by the patent system. Introduction of uniform patent laws across the world may reduce rather than increase variation in the direction of innovation between developing and developed countries.(Link1 Link2).
Maybe other factors influence innovation more than patents do.
Thus luckily innovations will continue to appear even without patents.