NCPA - National Center for Policy Analysis

Inadequate Patent Rules Stifling Innovation

June 16, 2015

For many entrepreneurs, their greatest asset when starting a business is their intellectual property. But protecting that intellectual property, to allow it to develop and grow into a viable business asset, can be a challenge. That protection also requires large efforts of skill, hard work and luck from dedicated owners to extract value. Because the road is so arduous, companies are not getting the most out of the process of protecting and nurturing intellectual property, specifically through the patent system.

Generally, the monopoly power granted to individuals or companies provides tremendous leverage. Yet observers have consistently crowed about the inadequacies of the American patent system.

So what are some of the reasons the U.S. patent system is failing to live up to its potential?

  • Patent trolls, also known as non-practicing entities, create an environment where innovative companies lose out. Patent trolls sue companies for patent infringement, even though they themselves aren't using or planning to use the technology within the patent.
  • Overly broad patents. When patents are granted by the United States Patent and Trademark Office (USPTO) that are broad in scope, inventors risk litigation. This concept is known as the tragedy of the anti-commons. It explains that when there is too much ownership through broadly developed patent claims it discourages successive innovation.
  • Patent protection is expensive. The cost of acquiring a patent for one's intellectual property is beyond the reach of many young businesses, which opt to keep their technology protected as a trade secret. 

The intricate way the patent system affects business and entrepreneurship is not just limited to the barriers listed above. Other sources of complexity, such as globalization and ever-advancing technologies, may not fit into a static intellectual property system. While the barriers to success are high, when intellectual property is properly valued, there are mutual benefits that flow to inventors, entrepreneurs, government and the general population.

Source: Chris Jackson, "Why Isn't the Patent System Nurturing More Innovation?" Kauffman Foundation, June 12, 2015. 


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