A Patent Failure?Patents May Hinder Creative Destruction. If So, Should We Consider Abolishing Patents?

Patents give inventors the sole legal right to market and sell their new ideas for a period of 20 years. So when considering the pluses and minuses of the patent system, it is important to begin with the fact that the possibility of obtaining a patent gives inventors a strong financial incentive to bear the research and development (R&D) costs necessary to come up with innovative solutions to old problems and speed the process of creative destruction.

At the same time, however, the patent system also gives patent holders the ability to stifle the creative energies of other inventors by suing or threatening to sue any individual or firm that they believe is infringing on their patent by producing or utilizing their invention without permission. The problem is most acute for products like cell phones that incorporate thousands of different technologies into a single product. That's because each of those technologies might possibly infringe on one or more patents. If so, a single lawsuit filed over just one of those patents could halt the production and sale of the entire product.

The alleged infringement may be totally unintentional or a matter of honest dispute. But if a patent holder believes that some part of the phone is infringing on his patent, he can threaten to sue the manufacturer and demand the shutdown of all production unless he receives royalty payments in compensation.

Consider Microsoft, which 30 years ago was a successful innovator thanks to its Windows operating system. But its attempt to create a market during the 2010s for Window-based cell phones failed entirely. Undaunted, Microsoft CEO Steve Balmer threatened to stop the production of all Android phones, because it so happens that the software used in those phones contains an obscure feature not actually used in those phones, but which Microsoft has a patent for.

In the case of pharmaceuticals, competition is so fierce that without patent protection the price of a generic drug would soon be driven down to its marginal production cost. That is problematic because the market price would be too low to ever recoup the large R&D costs necessary to identify and develop effective new medications. Thus, without patent protection, R&D would cease and no new drugs would be developed.

So for industries like pharmaceuticals that have easy-to-copy products, patents should continue to exist as they are the only way to provide the financial incentive necessary to get firms to invest the R&D monies that must be spent if you want innovation and creative destruction.

Things are very different, however, for complicated consumer products that are made up of thousands of separate technologies that are each difficult to copy and market. As an example, even if Apple's rivals obtained the blueprints for the iPhone, it would still be extremely costly for them to build the factories necessary to make copies. And even if they did that, they would still have to convince consumers that their copycat iPhones were as good as the original. Thus, unlike pharmaceuticals, patents are not necessary to provide the firms that produce complicated consumer goods with an incentive to develop new products and invest in R&D.

On the other hand, society would likely see great benefits if patents were eliminated for complicated consumer goods like cell phones and automobiles because the pace of creative destruction would likely increase as innovative companies would no longer fear patent infringement lawsuits and old rivals could no longer delay their own demise by taxing innovators. As a result, some economists now argue that patents should only be available for industries with simple products that are easy to copy and market. For industries with complicated products that are hard to copy and market, they say that patents should be eliminated.

What are your instinctive "first reflections" on this piece? Do you accept the premise that the nature of the production of some products is such that they should be protected by patents, while others deserve no such protection? Why? What have you learned from the Module 6 chapter readings that would put you in a better position to determine which classes of new products are worthy of patent protection? If only some inventions are awarded patent protection how do we assure fairness, combined with the goal of optimizing society's overall satisfaction?

THE BOLD ARE THE QUESTIONS THAT NEED TO BE ANSWERED. PLEASE MAKE SURE IT IS RIGHT AND COMPLETE AND THE RIGHT INFORMATION IS INVOLVED. I NEED THIS AS SOON AS POSSIBLE!!! I DO NOT INTEND ON COPYING YOUR WORK. PLEASE SOLVE THIS FOR ME