How Do Patent Laws Influence Innovation?
Patent laws were established during the early phases of the Industrial Revolution expressly to “promote the development of industry and technology,” i.e., to foster scientific innovation. Many national patent laws still include this wording in their current legal codes. While protecting trade secrets and the profits garnered from invention and innovation are cornerstones of a healthy economy, strict patent laws can slow or distort growth as well.
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Purpose
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The purpose of patents is to give exclusive rights to an inventor to profit economically from the invention. The profits from commercial use of the invention are intended to compensate the inventor for the time she put into developing the invention. Furthermore, the possibility of such profits is intended to serve as an incentive for future innovation.
Strong Patent Laws
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Strong patent laws--consisting of long patent terms, extensive exclusivity rights and tough penalties for violators--protect the profits generated by successful inventions. This provides greater incentive to new inventors to enter the field, to experienced inventors to keep developing ideas and to companies to invest in research and development (R&D).
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Monopolies and Slow Development
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Patent laws, however, walk a fine line in influencing innovation. Patent laws that are too strict can slow the process of technological advancement by drastically restricting who can expand on patent-protected inventions. Furthermore, because a patent holder has a monopoly on the production, distribution and sale of a product for the term of the patent, overly strict patent laws can lead to price distortions.
Debate: Pharmaceuticals
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Perhaps the most contentious debate about the role of patent laws in innovation centers on the pharmaceutical industry. Top pharmaceutical companies spend millions of dollars, and between three and 20 years, developing each new drug. Companies argue that to recoup costs and promote further innovation through R&D investments, they need strict patent laws, tough enforcement measures and long patent terms.
Both basic economic theory--that encouraging investment means both showing that profit is possible and guaranteeing that future profits will be protected--and experience tend to support the drug companies' argument. The United States has strict patent laws and tough enforcement that tend to favor pharmaceutical companies, but also has the most prolific pharmaceutical industry in the world.
Debate: Public Health
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Many people argue that the billions of dollars in profits posted by pharmaceutical companies every year are excessive in light of the billions of people who cannot afford medical treatment. Many public health advocates and government representatives argue that shorter patent terms and certain exceptions to patent rights would allow more people to receive critical treatment and would not cut far enough into industry profits to discourage innovation. The experience of a number of countries, particularly Brazil, supports this argument, as does some economic data.
Furthermore, R&D for many of the most critical and expensive drugs--such as cancer and HIV drugs--is at least partly paid for by government grants. Currently, the only major exception to patent exclusivity is compulsory licensing in the case of a national public health emergency.
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References
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