April 29, 2016

The Untold Story of Patents and Innovation

This articles was originally posted on the U.S. Chamber’s Above the Fold.

It’s a tale that has been told countless times, and while the details vary from story to story, the basic plot remains the same: An innovative company or entrepreneur introduces a game-changing product or technology that has the potential to improve our lives or tackle major societal challenges. While the breakthrough initially garners praise, the response sometimes turns sour when consumers realize the price reflects the years of research and development and the incremental failures and successes that lead to the discovery. It’s that second part of the narrative that has given rise to the notion that patents are what make new technologies expensive, and that they restrict our access to the world’s latest and greatest innovations.

It’s true: Intellectual property laws do provide a limited exclusivity to innovators, allowing them to temporarily charge a high prices to compensate for the often high cost of discovery and development, not merely the cost of production. However, that narrative only tells half of the story about the unique relationship between patents and innovation.

This is the other half of that story.

Over the past decade, a growing number of academic and industry researchers have been exploring the relationship between patent protections and innovations, particularly as it relates to technology startups. What they continue to find is that patents and other intellectual property protections are absolutely vital to supporting innovation; in fact, many of the technologies and innovations we take for granted today would never have come to bear without patents.

For starters, patents are an invaluable antidote for newness, helping startups with limited (or sometimes no) experience or measurable success reassure potential investors about their ability to one day monetize their ideas and inventions, according to research by economists at Harvard’s and New York University’s business schools. In addition, the presence of a patent allows startups to disclose details of their inventions without risking expropriation, and it helps entrepreneurs and innovators communicate technical details about their inventions in a credible fashion.

In other words, patents are an often essential tool for startups when it comes time to pitch investors and solicit the funding they need to expand their businesses. In fact, a study published this year by the Massachusetts Institute for Technology (MIT) found that startups that apply for patents are 35 percent more likely to grow than those that don’t apply.

In addition, the protections that patents provide are necessary in order to encourage our country’s best and brightest to try to take risks, start businesses, and turn their big ideas into tangible, innovative products and solutions. By facilitating entrepreneurship and innovation, patents are one of the best tools our country has to support job creation and economic growth.

Our patent system may not be perfect, and these studies in no way suggest that more can’t be done to facilitate broader access to innovative technologies. However, they shed light on a critical but often forgotten side of the patent debate, and they remind us that we cannot focus only on the implications of patents after innovation occurs. We have to remember how they enable investment in innovative research on the front end.

Understanding the different ways our patent system affects entrepreneurs, inventors and end users is critical if we hope to get the system right. As we look to hone the domestic infrastructure for delivery of new, innovative products, we must ensure that the system continues to foster innovation in the first place.


J.D. Harrison is senior editor of digital content for the U.S. Chamber. Nathalie Bougenies is an intern with the Global Intellectual Property Center.

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