The Economics of Patent Protection: Policy Implications from the Literature

Scholarly efforts to analyze the impact of the protection of intellectual property go back centuries. Despite the long history, however, many key questions have yet to be conclusively answered. Here, I review the research on the economics of patents, covering topics of particular relevance to policymakers. I examine studies on the role of patent strength in spurring innovation, diffusing information, transferring technology, speeding commercial development of inventions, and stimulating economic growth. The most general lesson to be gleaned from the patent literature is that there are few general lessons. Economic models of patent regimes rarely provide unambiguous answers to practical questions such as the appropriate scope for patents and their optimal duration. While researchers have reached a consensus in a couple of areas, such as the evidence that strong intellectual property rights assist in the transfer of technology from research institutions, much of the empirical research is just as unclear as the theory. Some studies report that strengthening patents leads to more R&D, and thus more innovation. Others conclude patent protection and the pace of research are, at best, tenuously related. But the empirical literature on intellectual property rights does yield three concrete lessons. First, the institutional setting in which research is conducted plays a pivotal role. Studies that fail to give significant weight to organizational structures and legal environments are bound to be seriously flawed. Second, the old saw about garbage in-garbage out applies in spades to analyses of intellectual property rights: problems associated with underlying assumptions, measurement issues, and data errors loom large in this literature. Third, policymakers should be wary of putting much stock in any one study. The complex nature of the relationships between property rights, innovation, information diffusion, and economic growth are difficult to capture in a single analysis.