A Case for Patent Reform

For many decades most economists believed patents were key to the innovation and material progress enjoyed by the West. In recent years, however, many have looked at patents with growing skepticism, with some even suggesting that the patent system be scrapped. In contrast, economist Arthur M. Diamond Jr. (Univ. of Nebraska at Omaha) believes these critics miss their mark. Diamond recognizes that the U.S. patent system has major problems, including overly costly litigation, but he holds that it can and should be mended, not ended. He makes his case in “Seeking the Patent Truth: Patents Can Provide Justice and Funding for Inventors,” the lead article of the Winter 2015 issue of The Independent Review.

Diamond begins by arguing that critics and defenders of patents often share false assumptions. For example, both camps tend to overlook what he regards as patents’ primary moral purpose: to provide justice to inventors. They also tend to misunderstand patents’ main economic function: Their actual role isn’t to incentivize inventors to invent, but rather to enable them to do so—such as through the licensing of their patents to manufacturers. (Thomas Edison relied on this practice early in his career.)

After developing these arguments, Diamond examines several proposals for improving the U.S. patent system, including crowd-sourcing aspects of the patent-review process and creating specialized patent courts to prevent opportunistic plaintiffs from shopping for a favorable jurisdiction in which to file a lawsuit (a problem that Independent Institute Research Fellow William J. Watkins Jr. closely examines in Patent Trolls: Predatory Litigation and the Smothering of Innovation).

Inventors may also find relief through the development of various private-sector institutions, Diamond explains. One such example, Intellectual Ventures, a company co-founded by Microsoft founder Bill Gates, claims it benefits inventors by purchasing their patent rights and thereby enabling them to focus on inventing. Such organizations can help make up for the flaws of the legal system, but they also have additional appeal: They involve using innovators to find ways to support other innovators.

[An earlier version of this post appeared in the January 13, 2015, issue of The Lighthouse. To subscribe to this weekly newsletter, enter your email address on the Independent Institute’s sign-up page.]