Harvard Journal of Law & Technology 

Volume 30, Number 1 Fall 2016 

PATENT RIGHTS IN A CLIMATE OF INTELLECTUAL 

PROPERTY RIGHTS SKEPTICISM

Hon. Maureen K. Ohlhausen*

TABLE OF CONTENTS

I. INTRODUCTION .................................................................................. 1

II. THE PATENT SYSTEM UNDER FIRE .................................................. 8

A. The Patent System Is Presently the Object of 

Unprecedented Criticism ........................................................... 8

B. The Road to Controversy: How Changing Technologies 

Distress a One-Size-Fits-All Patent System ............................. 10

III. THE ECONOMIC EFFECTS OF PATENT RIGHTS .............................. 14

A. The Economic Relationship Between Patents, 

Innovation, and Welfare ........................................................... 15

B. Difficulties that Afflict Empirical Measurement of How 

Patents Affect Innovation ......................................................... 21

C. Econometric Studies Have Linked Patents to Innovation .......... 24

1. Do Patents Boost Innovation? Empirical Evidence ................. 25

IV. FASHIONING RESPONSIBLE POLICY FROM IMPERFECT 

INFORMATION ................................................................................. 45

V. CONCLUSION .................................................................................. 49

I. INTRODUCTION

A movement is underway to dilute U.S. patents, which have recently been the object of unprecedented criticism. U.S. policymakers 

lack clear guideposts for evaluating this criticism. Further, some 

emerging economies are at a crossroads in deciding how to treat proprietary technology, and they look at this U.S. debate through the 

prism of their own history and economic pressures. As a Commissioner on the Federal Trade Commission (“FTC”), I have consistently 

advocated for protecting intellectual property rights (“IP rights”), both 

domestically and abroad. That view is not an outlier, but neither does 

it enjoy unanimous support. A challenge to sorting out the conflicting 

arguments is that commentators on both sides often couch their views 

 

* Commissioner, Federal Trade Commission. The views expressed in this Article are 

solely those of the author and do not necessarily reflect the views of the Federal Trade 

Commission or any other Commissioner. The author would like to thank Alan Devlin for his 

extensive research efforts and thoughtful analysis, which were invaluable to this paper.
2 Harvard Journal of Law & Technology [Vol. 30

in conclusory terms, reflecting strongly held beliefs about how patents 

either solve public-goods problems or inhibit technological progress 

by inventors who have reasons beyond IPRs to invest in research and 

development (“R&D”). 

In order to provide a clearer policy path through this thicket, this 

Article explores the empirical and theoretical literature on the relationship between patents and innovation. In crafting the most beneficial patent policy, we should not overlook or minimize the strong 

theoretical and evidentiary justifications for property rights in technology, although this does not mean that granting ever-stronger patent 

protection will inevitably lead to ever-greater innovation. Limited 

patent reform may also be appropriate to address identified problems 

such as insufficient quality control, the broad scope of certain method 

patents, and inadequate disclosure. Despite this fine-tuning, the United States should continue to lead the way in protecting the rights of 

deserving inventors and in encouraging other countries to do the 

same. This Article thus builds upon my prior enforcement decisions 

and speeches, which have advocated for the rights of legitimate inventors to monetize their innovations, cautioned against undermining IP 

rights, and sought a targeted response to problems with the contemporary patent system.1

To evaluate today’s patent regime responsibly, policymakers 

should start with evidence about patents’ economic effects. Surprisingly, there is no broad consensus on how IP rights affect technological advance, despite the prominent role of patents in the economy. 

One common justification for the patent system is to protect inventors 

against third parties that would appropriate their costly and hard-won 

insights; certainly there are settings where innovation is both R&D 

intensive and vulnerable to copying, such as with respect to pharmaceutical innovation.2 However, the larger world of innovation does 

not always align with this narrative. Indeed, most patentees who sue 

for infringement do not even allege copying.3 Thus, the reality can be 

 1. See, e.g., Maureen K. Ohlhausen & Dan Schneider, Intellectual Property and the National Security Issue, WASH. TIMES (Dec. 1, 2015), http://www.washingtontimes.com/

news/2015/dec/1/maureen-ohlhausen-dan-schneider-intellectual-prope/ 

[https://perma.cc/TSU8-PJ67]; Maureen K. Ohlhausen & Joshua D. Wright, Reply Submission on the Public Interest — In re Certain 3G Mobile Handsets & Components Thereof,

U.S. Int’l Trade Comm’n (July 20, 2015) [hereinafter Reply Sumission]; Maureen K. Ohlhausen, Commissioner, Fed. Trade Comm’n, Speech to the China Intellectual Property Law 

Association’s IP and Antitrust Forum: Antitrust Oversight of Standard-Essential Patents: 

The Role of Injunctions (Sept. 12, 2015) [hereinafter Antitrust Oversight of StandardEssential Patents]; Maureen K. Ohlhausen, Commissioner, Fed. Trade Comm’n, Remarks 

Before the Second Annual GCR Live Conference: Antitrust Enforcement in China — What 

Next? (Sept. 16, 2014).

2. See, e.g., Dan L. Burk & Mark A. Lemley, Policy Levers in Patent Law, 89 VA. L.

REV. 1575, 1581–82, 1590, 1616–17 (2003).

3. Christopher A. Cotropia & Mark A. Lemley, Copying in Patent Law, 87 N.C. L. REV.

1421, 1444–45 (2009). In patent law, unlike, for example, in copyright law, infringement 
No. 1] Patent Rights in a Climate of Skepticism 3

more complicated than the core theory might suggest, increasing the 

need for actual evidence.

Weighing the pros and cons of the patent regime from an evidentiary perspective, however, is challenging. Consider the potential benefits of the patent system: allowing inventors to capture more of the 

social value of their discoveries induces them to devote more capital 

to R&D than would otherwise be the case. That tendency applies not 

only to invention, but also to commercialization.4 The result — so the 

theory goes — is more eclectic and qualitatively superior innovation. 

But testing for that outcome is not straightforward.

Patents may yield benefits, but some of those benefits extend into 

the future, are difficult to confirm, and are even harder to quantify. By 

contrast, patents impose obvious costs in the present. First, the cost 

and prevalence of patent litigation have increased over time, cutting 

into accused infringers’ and patentees’ bottom lines.5 Second, the best 

patents may confer economic power, raising the possibility that consumers must pay monopoly prices or forego products or services that 

they could have afforded under competition.6 This concern is not abstract. Life-saving drugs, for instance, can be expensive prior to generic entry, impacting healthcare costs in general and pricing some 

patients out of the market.7 Third, broad patents can encumber followon innovation in high-transaction-cost environments where improvers 

cannot easily bargain with the patentee.8 Fourth, technology users 

face a near-inevitable risk of infringement due to the number of patents and the difficulty of achieving a guaranteed clearing position ex 

 does not require copying. Rather, an infringer need only make, use, offer to sell, or sell any 

patented invention without permission. 35 U.S.C. § 271(a) (2012).

4. See F. Scott Kieff, Property Rights and Property Rules for Commercializing Inventions, 85 MINN. L. REV. 697, 707–08 (2001). 

5. See, e.g., Ian D. McClure, Accountability in the Patent Market Part II: Should Public 

Corporations Disclose More to Shareholders?, 26 FORDHAM INTELL. PROP. MEDIA & ENT.

L.J. 417, 421 (2016). In the last two years, however, the total number of U.S. patent infringement cases has declined. See PWC, 2016 PATENT LITIGATION STUDY: ARE WE AT AN 

INFLECTION POINT? (May 2016), http://www.pwc.com/us/en/forensicservices/publications/assets/2016-pwc-patent-litigation-study.pdf [https://perma.cc/5ZCHYJZ5].

6. See, e.g., Benjamin N. Roin, Intellectual Property Versus Prizes: Reframing the Debate, 81 U. CHI. L. REV. 999, 1001 (2014).

7. See, e.g., FED. TRADE COMM’N, AUTHORIZED GENERIC DRUGS: SHORT-TERM 

EFFECTS AND LONG-TERM IMPACTS, ii–iii (2011). See generally Luke M. Olson & Brett W. 

Wendling, The Effect of Generic Drug Competition on Generic Drug Prices During the 

Hatch-Waxman 180-Day Exclusivity Period (Fed. Trade Comm’n. Bureau of Econ., Working Paper No. 317, 2013) 

https://www.ftc.gov/sites/default/files/documents/reports/estimating-effect-entry-genericdrug-prices-using-hatch-waxman-exclusivity/wp317.pdf [https://perma.cc/E4CV-ELXJ].

8. See Janet Freilich, The Uninformed Topography of Patent Scope, 19 STAN. TECH. L.

REV. 150, 152–53 (2015). See generally Robert P. Merges & Richard R. Nelson, On the 

Complex Economics of Patent Scope, 90 COLUM. L. REV. 839 (1990).
4 Harvard Journal of Law & Technology [Vol. 30

ante.9 Such difficulties can hinder ex ante technology transfer, making 

patent licensing less efficient.10

Given these costs, it is no surprise that some commentators ask 

whether the patent system can justify its price. Some observers assert 

that the presumption that patents spur more invention is unsupported 

by evidence.11 Patent skeptics argue that innovators will not only continue to invent without patents, but will do so at a higher rate and at a 

lower cost to society.12 Those claims warrant serious consideration.

This Article defends robust patent rights based on evidence about 

the relationship between patents and innovation. It is true that it is not 

always possible to identify when patents are a but-for cause of innovation, and the patent system has flaws and is subject to some abuse.13

Nevertheless, there is ample evidence that patents serve a materially 

valuable role in promoting innovation in at least some settings.14 Given the rich innovation in markets where claimed patent-related problems are most prevalent — as well as patents’ longstanding role 

within America’s larger innovation platform — the cautious, informed, and in my view, correct response is incremental, targeted adjustment. Patents should remain a central feature of U.S. technology 

policy. 

This topic matters not just in the U.S. but also globally, and what 

we say and do here to our patent system reverberates around the 

world. That is especially so in places that lack a strong history of protecting IP rights; few developing countries actively combat piracy, for 

instance.

15 Some observers assert that influential jurisdictions appear 

to use their antitrust powers not to protect competition, but to regulate 

the price of patent rights.16 Such critics point to Qualcomm’s agreement to pay $975 million and to lower its royalty rates by more than a 

 9. See, e.g., Christina Mulligan & Timothy B. Lee, Scaling the Patent System, 68 N.Y.U.

ANN. SURV. AM. L. 289, 304–05 (2012); Mark A. Lemley, Ignoring Patents, 2008 MICH.

ST. L. REV. 19, 21–22 (2008).

10. See generally FED. TRADE COMM’N, THE EVOLVING IP MARKETPLACE: ALIGNING

PATENT NOTICE AND REMEDIES WITH COMPETITION (2011) (noting the proliferation of ex 

post patent licensing, in lieu of ex ante technology transfer, and explaining the normative 

implications of that dynamic).

11. See infra Part II.A.

12. See infra Part II.A.

13. See, e.g., FED. TRADE COMM’N, PATENT ASSERTION ENTITY ACTIVITY: AN FTC

STUDY (2016) [hereinafter PAE STUDY] (observing that Litigation PAEs may be engaging 

in nuisance litigation); FED. TRADE COMM’N, THE EVOLVING IP MARKETPLACE: ALIGNING 

PATENT NOTICE AND REMEDIES WITH COMPETITION (2011) [hereinafter PATENT NOTICE 

AND REMEDIES] (explaining the complicated welfare effects of widespread ex post patent 

licensing, as distinct from unambiguously efficient ex ante technology transfer).

14. See infra Part III.B.

15. See, e.g., OFFICE OF THE U.S. TRADE REPRESENTATIVE, 2016 SPECIAL 301 REPORT

(2016), https://ustr.gov/sites/default/files/USTR-2016-Special-301-Report.pdf [Add perma].

16. See, e.g., Shubha Ghosh & D. Daniel Sokol, FRAND in India 5 (Univ. of Wis., Legal 

Studies Research Paper No. 1374, 2016) http://papers.ssrn.com/sol3/papers.cfm?

abstract_id=2718256&download=yes [https://perma.cc/QWU5-K5XM].
No. 1] Patent Rights in a Climate of Skepticism 5

third to Chinese companies to end China’s antitrust investigation,17as 

well as to the Korean Fair Trade Commission (“KFTC”) action to fine 

Qualcomm and force it to change its licensing practices.18

Other international events also point to diluted IP rights. In August 2015, China adopted an essential-facilities doctrine that may require the compulsory licensing of IP rights by firms considered 

dominant.19 The Japanese Fair Trade Commission has promulgated 

rules prohibiting owners of standard-essential patents (“SEPs”) from 

seeking injunctive relief, “even if the acts do not substantially restrict 

competition.”20 The Director of the KFTC has opined that “the exercise of IP rights has the potential to become a monster” and that IP

rights “can undermine technological development.”21 And the Competition Commission of India has found that charging unreasonably 

high royalties, or basing royalty calculations on final-product sales, on 

FRAND-encumbered SEPs abuses a dominant position.22

A recalibration of patent rights is also underway in America. Although it has reached some pro-patentee decisions,23 the U.S. Supreme 

Court has recently diluted patent rights in other cases. The Court has 

limited the sphere of patentable subject matter,24 made it difficult for 

 17. See, e.g., U.S. CHAMBER OF COMMERCE, COMPETING INTERESTS IN CHINA’S 

COMPETITION LAW ENFORCEMENT: CHINA’S ANTI-MONOPOLY LAW APPLICATION AND THE 

ROLE OF INDUSTRIAL POLICY 62–66 (2014) https://www.uschamber.com/sites/default/files/

aml_final_090814_final_locked.pdf [https://perma.cc/93N6-GBK8].

18. Mark Briggs, KFTC Recommends Fines Against Qualcomm, GLOBAL COMPETITION 

REVIEW (Nov. 18, 2015) http://globalcompetitionreview.com/news/article/39853/kftcrecommends-fines-against-qualcomm [https://perma.cc/9PAQ-GHLY]; Erik Telford, Is 

South Korea Practicing Protectionism?, THE HILL (Sept. 18, 2015) http://thehill.com/blogs/

congress-blog/foreign-policy/254045-is-south-korea-practicing-protectionism 

[https://perma.cc/2LJP-CZRV].

19. STATE ADMIN. OF INDUS. & COMMERCE, PROVISIONS ON THE PROHIBITION OF THE 

ABUSE OF INTELLECTUAL PROPERTY RIGHTS TO ELIMINATE OR RESTRAIN COMPETITION, 

Art. 7 (2015), http://www.kangxin.com/en/index.php?optionid=927&auto_id=726 

[https://perma.cc/C8DA-GHMD].

20. JAPAN FAIR TRADE COMM’N, GUIDELINES FOR THE USE OF INTELLECTUAL 

PROPERTY UNDER THE ANTIMONOPOLY ACT Part 4(2)(iv) (2015); see also Lisa Kimmel, 

Injunctive Relief for Infringement of FRAND-Assured Standard-Essential Patents: Japan 

and Canada Propose New Antitrust Guidance, CPI ANTITRUST CHRON., Oct. 2015, 

https://www.competitionpolicyinternational.com/assets/Uploads/KimmelOct-151.pdf

[https://perma.cc/Z6PS-XL2Y].

21. See Pallavi Guniganti, KFTC Official: IP Rights Could be “a Monster”, GLOBAL 

COMPETITION REV. (May 19, 2015) (quoting Seong-guen Kim, Director, International Cooperation Division, KFTC).

22. See, e.g., Ghosh & Sokol, supra note 16, at 5.

23. Commil USA LLC v. Cisco Sys. Inc., 135 S. Ct. 1920, 1929 (2015) (holding that an 

alleged infringer’s good-faith belief in a patent’s invalidity is not a defense to induced infringement); Microsoft Corp. v. i4i Ltd. P’ship, 131 S. Ct. 2238, 2246 (2011) (holding that 

an accused infringer must prove patent invalidity with clear and convincing evidence); see 

also Teva Pharm. USA v. Sandoz, Inc., 135 S. Ct. 831, 836 (2015) (holding that Federal 

Circuit must apply deferential clear error standard to district court’s claim construction).

24. See Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347, 2357 (2014) (denying 

protection to “generic computer implementation” of otherwise abstract ideas); Ass’n for 

Molecular Pathology v. Myriad Genetics, Inc., 133 S. Ct. 2107, 2120 (2013) (denying pro-
6 Harvard Journal of Law & Technology [Vol. 30

patentees to obtain injunctions,25 reduced a defendant’s burden to 

show obviousness,

26 enhanced the definiteness requirement,27 made it 

easier for district courts to award costs and fees to an accused infringer who prevails,28 and limited the scope of induced infringement.29

Following the 2011 America Invents Act,30 which introduced postgrant and inter partes review, the Patent Trial and Appeals Board 

(“PTAB”) has invalidated patents on a large scale.31

Many of those actions sensibly bolster the patent system. Nevertheless, the collective legal environment has been hostile to U.S. patent owners. Those developments take place alongside an academic 

discourse overflowing with criticism of today’s patent regime. Some 

commentators argue that patents have become divorced from their 

utilitarian function, acting to brake rather than to drive scientific advance.

32 Reflecting the mantra that “information wants to be free,”

some such critics argue that there is little or no evidence that patents 

promote innovation.33 The ensuing calls for policy change have seldom been modest: some even call for outright patent abolition.34 Others defend property rights in technology, even if the system — as with 

any legal regime — does not operate perfectly in all cases.35

Some commentators suggest that many of those who variously 

defend or vilify the patent system rely simply on faith that IP rights 

enhance or hinder technological progress.36 Blind faith in either direc-

 tection for isolation of naturally occurring DNA sequences); Mayo Collaborative Servs. v. 

Prometheus Labs., Inc., 132 S. Ct. 1289, 1294 (2012) (denying protection to processes that 

identify natural correlations and add only “well-understood, routine, conventional activity 

previously engaged in by researchers in the field”); Bilski v. Kappos, 561 U.S. 593, 609 

(2010) (denying protection to concept of hedging risk and its application to energy markets).

25. See eBay Inc. v. MercExchange, LLC, 547 U.S. 388, 392–93 (2006).

26. See KSR Int’l Co. v. Teleflex, Inc., 550 U.S. 398, 415 (2007).

27. See Nautilus Inc. v. Biosig Instruments Inc., 134 S. Ct. 2120, 2129–30 (2014).

28. See generally Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 

(2014); see also Highmark Inc. v. Allcare Health Mgmt. Sys. Inc., 134 S. Ct. 1744, 1748 

(2014).

29. See generally Limelight Networks Inc. v. Akamai Techs. Inc., 134 S. Ct. 2111 

(2014).

30. Leahy-Smith America Invents Act, Pub. L. No. 112-29, 125 Stat. 284 (2011) (codified as amended throughout Title 35).

31. See Brian J. Love & Shawn Ambwani, Inter Partes Review: An Early Look at the 

Numbers, 89 U. CHI. L. REV. DIALOGUE 93 (2014).

32. See MICHELE BOLDRIN & DAVID K. LEVINE, AGAINST INTELLECTUAL MONOPOLY

(2010).

33. See Part II.A. infra.

34. See BOLDRIN & LEVINE, supra note 32; ADAM B. JAFFE & JOSH LERNER,

INNOVATION AND ITS DISCONTENTS: HOW OUR BROKEN PATENT SYSTEM IS ENDANGERING 

INNOVATION AND PROGRESS, AND WHAT TO DO ABOUT IT (2007).

35. See, e.g., Adam Mossoff, Policy Debates on Patents Should Focus on Facts, Not 

Rhetoric, FORBES (Dec. 18, 2012), http://www.forbes.com/sites/realspin/2012/12/18/policydebates-on-patents-should-focus-on-facts-not-rhetoric/#3e59a80216e5.

36. See, e.g., Mark A. Lemley, Faith-Based Intellectual Property, 62 UCLA L. REV.

1328 (2015).
No. 1] Patent Rights in a Climate of Skepticism 7

tion is an irresponsible foundation for action by policymakers. In an 

effort to provide a firmer foundation for any policy in the IP space, 

this Article explores the empirical literature governing the relationship 

between patents, R&D, and economic growth. The goal is not comprehensively to review the econometric literature on the subject. Rather, it is to distill the literature’s principal teachings and to use the 

information — albeit incomplete and resistant to broad prescriptions — to help formulate responsible policy positions. Policymakers 

who wish to promote consumers’ interests must not avoid difficult 

questions but must seek to answer them as best they can with the tools 

at hand. Invariably, error analysis comes into play. Much good-faith 

disagreement arises because of imperfect information, a need to resort 

to intuition in teasing larger conclusions out of ambiguous data, and 

differing appetites for risk in advocating departures from the status 

quo.

My view — in light of the relevant theory, econometric evidence, 

and the U.S. experience with a successful innovation policy of which 

patents form a central part — is that strong patent rights should remain at the heart of the U.S. industrial policy. That does not mean 

uncritical embrace of ever-broader patents in all industries, however. 

The need to scrutinize the novelty, nonobviousness, and utility of 

claimed inventions, to adjust disclosure requirements, and to calibrate 

appropriate compensation should take into account the incentives that 

drive R&D in various settings. Nevertheless, this Article’s bottom line 

is that patents promote technical advance — albeit to varying degrees — across industries. I worry that today’s calls for diluted patent 

rights often go beyond incremental adjustment and threaten to weaken 

patents systemically, which could compromise R&D investment. Further, it helps to undermine overseas protection of U.S. technologies. 

Developing countries watch American innovation policy closely and 

U.S. restrictions on patent rights may spur other nations to limit inventors’ rights in a more radical fashion.37

Part II recounts the fierce criticism of the patent system that has 

emerged from some sources and then explains why those critiques 

arose and how they coincide with new global limits on patent rights. 

Part III explains the theory underlying the patent system. It explores 

the economic literature that provides insights on when patents are 

likely to promote or hinder innovation. Having established that baseline, Part IV swivels to the heart of this Article: an examination of the 

empirical literature that has studied the relationship between patents 

and technological progress. Part IV addresses criticisms that the patent system does not promote R&D. A brief conclusion follows, 

 37. Antitrust Oversight of Standard-Essential Patents, supra note 1.
8 Harvard Journal of Law & Technology [Vol. 30

which captures the essence of my argument for a strong patent system. 

II. THE PATENT SYSTEM UNDER FIRE

The cornerstone of American innovation policy, patents allow inventors to prevent others from copying their hard-earned creations, 

encourage firms to invest in commercializing technologies, prompt 

technology transfer, disclose cutting-edge insights to those skilled in 

the art, and reflect the U.S. tradition of honoring property rights. Why, 

then, are they so controversial today? This Part provides an overview 

of the most notable contemporary criticism of the patent regime, and 

then pivots to the reasons why patents draw greater controversy in the 

U.S. today than they have historically. 

A. The Patent System Is Presently the Object of 

Unprecedented Criticism

Respected economists Michele Boldrin and David Levine find 

“no evidence that intellectual monopoly achieves the desired purpose 

of increasing innovation,” describe IP rights as an “unnecessary evil,”

and call for the patent system’s abolition.38 Economist Adam Jaffe 

and Harvard Business School professor Josh Lerner call the patent 

system “broken.”39 Law professors Michael Meurer and James Bessen 

think it “unlikely that patents today are an effective policy instrument 

to encourage innovation overall.”40 As for encouraging ideas, the 

Economist wrote that “[t]oday’s patent systems are a rotten way of 

rewarding them.”41 Indeed, the magazine appeared to embrace the 

notion that “society as a whole might even be better off with no patents than with the mess that is today’s system.”42 In law professor 

Thomas Cheng’s view, theory and empirical studies “firmly refute[] 

the notion that patent protection is necessary for securing innovation.”43 Richard Stallman argues that “patent law should be abol-

 38. BOLDRIN & LEVINE, supra note 32, at 7, 11; see also Michele Boldrin & David K. 

Levine, The Case Against Patents, 27 J. ECON. PERSP. 3, 3–4 (2013). 

39. See generally JAFFE & LERNER, supra note 34.

40. JAMES BESSEN & MICHAEL J. MEURER, PATENT FAILURE: HOW JUDGES,

BUREAUCRATS, AND LAWYERS PUT INNOVATORS AT RISK 216 (2008).

41. Time to Fix Patents, THE ECONOMIST (Aug. 8, 2015), http://www.economist.com/

news/leaders/21660522-ideas-fuel-economy-todays-patent-systems-are-rotten-wayrewarding-them-time-fix [https://perma.cc/QRE7-RWSE].

42. A Question of Utility, THE ECONOMIST (Aug. 8, 2015), http://www.economist.com/

node/21660559 [https://perma.cc/7VE7-7A5F].

43. Thomas K. Cheng, A Developmental Approach to the Patent-Antitrust Intersection, 

33 NW. J. INT’L L. & BUS. 1, 46 (2012).
No. 1] Patent Rights in a Climate of Skepticism 9

ished.”44 The Electronic Frontier Foundation’s view is that the “patent 

system is broken” and “it’s time to start over.”45

The chorus of criticism goes on. Attorney William Hubbard argues that “patent protection in the United States should be weakened.”46 The Hon. Richard A. Posner sees “serious problems with our 

patent system.”47 A leading authority on patent law, Mark Lemley,

has proclaimed the existence of a “patent crisis.”48 A renowned economist, Carl Shapiro, believes that the “patent system . . . provides excessive rewards to patent holders . . . reduc[ing] economic efficiency 

by discouraging innovation.”49 Even Google, which secured more 

than 2,500 patents in 201450, has sometimes poured cold water on the 

importance of IP rights. Its general counsel, Kent Walker, has opined 

that a “patent isn’t innovation. It’s the right to block someone else 

from innovating” and that “patents are not encouraging innovation.”51

Although outright elimination of the patent regime is an outlier view, 

many commentators believe that society ought to jettison patents in 

particular fields of invention such as computer software, business 

 44. Richard Stallman, Patent Law Is, at Best, Not Worth Keeping, 45 LOY. U. CHI. L.J.

389, 389 (2013).

45. Patent Fail: In Defense of Innovation, ELECTRONIC FRONTIER FOUNDATION,

https://www.eff.org/patent [https://perma.cc/77YV-Z3TK]. 

46. William Hubbard, The Competitive Advantage of Weak Patents, 54 B.C. L. REV. 

1909, 1913 (2013).

47. Richard A. Posner, Why There Are Too Many Patents in America, ATLANTIC (July 

12, 2012), http://www.theatlantic.com/business/archive/2012/07/why-there-are-too-manypatents-in-america/259725/ [https://perma.cc/A4T9-C3MH].

48. See DAN L. BURK & MARK A. LEMLEY, THE PATENT CRISIS AND HOW THE COURTS

CAN SOLVE IT 167–70 (2009).

49. Carl Shapiro, Patent Reform: Aligning Reward and Contribution, 8 INNOV. POL’Y &

ECON. 111, 112 (2007).

50. IFI Claims Patents Services, IFI CLAIMS 2014 Top 50 US Patent Assignees, (updated Jan. 29, 2015), 

http://www.ificlaims.com/index.php?page=misc_top_50_2014; Intellectual

Property Owners Association, Top 300 Organizations Granted U.S. Patents in 2014 (June 

15, 2015), http://www.ipo.org/wp-content/uploads/2015/06/2014-Top300.pdf.

51. M.G. Siegler, Google on the Nortel Loss, Patents as Government-Granted Monopolies, and Plates of Spaghetti, TECHCRUNCH (July 25, 2011), http://techcrunch.com/2011/

07/25/google-patent-fight/ [http://perma.cc/C9ES-KQ73]. Still, Google’s head of patent 

transactions has explained that, “[a]t Google, we appreciate that patents play an important 

role in fostering innovations in many different ways.” Deloitte, Patent Reform and CFO 

Considerations: Views from Google, Intellectual Ventures, ManyWorlds and RPX, WALL 

ST. J. (Nov. 9, 2015, 12:01 AM), http://deloitte.wsj.com/cfo/2015/11/09/patent-reform-andcfo-considerations-views-from-google-intellectual-ventures-manyworlds-and-rpx/ 

[http://perma.cc/ M4QU-85UH].
10 Harvard Journal of Law & Technology [Vol. 30

methods, and genetics.52 Even some who have defended the status 

quo have done so reluctantly.53

Whether these claims are justified or not, it is remarkable that the 

stalwart of U.S. innovation policy has become so controversial. The 

proceeding Section explores events over the last two decades that 

have led to mounting criticism of the U.S. patent regime, and then 

explains why it is so important that we resolve questions surrounding 

patents’ contribution to innovation policy.

B. The Road to Controversy: How Changing Technologies Distress a 

One-Size-Fits-All Patent System

Patents attract controversy by their nature. A patent’s definitive 

quality — the right to exclude — means that some firms wishing to 

market a technological good or to employ a useful process cannot do 

so. Patent rights deny consumers lower prices and a wider choice 

among sellers in the short term in the hope of achieving greater longterm gains. Those experiencing the immediate costs are prone to complain, but it is important that policymakers not uncritically equate the 

protests of these aggrieved stakeholders with the public interest.

It is no surprise that inventors of breakthrough technologies have 

reaped great rewards historically, in the process suppressing near-term 

competition. In the 1910s, Glenn Curtiss and other innovators in the 

aviation space sought to develop alternative aeronautic technologies, 

but faced blocking patents held by the Wright Brothers.54 So, too, 

Edison’s General Electric Company excluded all competition in incandescent lamps in the late 1800s.55 In some academics’ estimation, 

such “pioneer patents” did not produce smooth licensing and coordination.56 Rather, they contend, such broad patents gave rise to litigation and suppressed third-party improvements.57 History is replete 

with examples of companies that achieved great economic power in 

part through patent holdings, from AT&T in the telecommunications 

space to Kobe in oil drilling, both of which ultimately fell afoul of 

antitrust law.58

 52. See Pamela Samuelson, Benson Revisited: The Case Against Patent Protection for 

Algorithms and Other Computer Program-Related Inventions, 39 EMORY L.J. 1025, 1025–

26 (1990); Joshua D. Sarnoff, Patent-Eligible Inventions After Bilski: History and Theory, 

63 HASTINGS L.J. 53, 94–101 (2011).

53. See, e.g., Brian Peckham, Should the U.S. Patent Laws Be Abolished?, 11 J. 

CONTEMP. L. 389, 421 (1985).

54. See Merges & Nelson, supra note 8, at 888–91.

55. See id. at 885–88.

56. See generally id.

57. Id.

58. See MCI Commc’ns Corp. v. AT&T, 708 F.2d 1081, 1092–93 (7th Cir. 1983), cert. 

denied, 464 U.S. 891 (1983); Kobe, Inc. v. Dempsey Pump Co., 198 F.2d 416, 423–24 (10th 

Cir. 1952), cert. denied, 344 U.S. 837 (1952).
No. 1] Patent Rights in a Climate of Skepticism 11

Even if groundbreaking inventors encumbered cumulative innovation in such ways, however, few question those innovators’ claim to 

a share of the social value flowing from their insights. Generally, the 

patent-policy debate accompanying revolutionary advances over the 

prior art goes to optimal breadth of the exclusive right — not to 

whether society should grant any such right at all. Thus, despite occasional controversy, patents have enjoyed an illustrious reputation. Associated with famous inventors like Thomas Edison, Alexander 

Graham Bell, and Samuel Morse, patents symbolize ingenuity and 

innovative brilliance. It is no surprise that they have been so central to 

the U.S. legal tradition given their explicit constitutional recognition.59

The maelstrom of controversy surrounding the U.S. patent system 

today, however, is unprecedented. One cause is that the patent system 

emerged in a time when mechanical inventions and manufacturing 

processes accounted for the lion’s share of innovation.60 Indeed, at the 

turn of the twentieth century, “if you put technology in a bag and 

shook it, it would make some noise.”61 Today, the reality is different. 

Advances in computing, microelectronics, nanotechnology, and beyond have given rise to increasingly sophisticated consumer products 

that combine a dazzling array of discrete technologies. RPX has estimated, for instance, that a quarter of a million active patents may read 

on smartphone products.62 Even one semiconductor chip may implicate thousands of patents.63

Standing alone, the fact that many separate IP rights relate to a 

single device does not mean that patents encumber technical advance, 

however. Each act of invention matters and should be encouraged. 

Patents can create incentives necessary to engage in further R&D, and 

those incentives are no less important because the invention is part —

rather than the entirety — of an end product. Still, problems can 

emerge when the technology search and licensing environment is subject to significant transaction costs. Were bargaining free, inventors 

and users of the technologies would easily find each other, negotiate 

royalties tied to competitive alternatives, and enable the seamless, 

downstream flow of proprietary technology.

In practice, however, transaction costs can rise steeply in an environment where myriad patents relate to a single device, especially if 

 59. U.S. CONST. art. I, § 8, cl. 8.

60. See, e.g., Sean B. Seymore, Atypical Inventions, 86 NOTRE DAME L. REV. 2057, 2064 

(2011).

61. Robert P. Merges, As Many as Six Impossible Patents Before Breakfast: Property 

Rights for Business Concepts and Patent System Reform, 14 BERKELEY TECH. L.J. 577, 585 

(1999).

62. RPX Corp., Registration Statement (Form S-1), 59 (Sept. 2, 2011).

63. Deborah Platt Majoras, A Government Perspective on IP and Antitrust Law, 38 

RUTGERS L.J. 493, 497 (2007).
12 Harvard Journal of Law & Technology [Vol. 30

ownership of the relevant patents is atomized. In that case, securing a 

clearing position would require identifying and successfully negotiating with many different parties. The fact that some patents employ 

vague claim language and provide only modest disclosure compounds 

the difficulty.64 That phenomenon is especially likely to arise with 

respect to patents directed at business methods and softwareimplemented processes.65 Not all such patents are ambiguous, of 

course, but a material proportion of them have that characteristic. 

Many attribute this problem to the Federal Circuit’s 1998 decision in 

State Street Bank, which held that methods are patentable if they 

achieve a useful, concrete, or tangible result.66 That decision paved 

the way for the USPTO to issue thousands of business method patents, often without the benefit of a rich prior art with which to make 

informed nonobviousness and novelty decisions.67

The result today is that, in industries such as information technology and consumer electronics, there is a disconnect between invention 

and commercialization. Fearing inadvertent or willful infringement, 

and perhaps due to an inability to secure at reasonable cost a guaranteed clearing position ex ante, many technology implementers instruct 

their engineers simply to ignore patents and to develop technical solutions to problems afflicting next-generation products independently.68

That is an imperfect state of affairs because firms selling technological goods to consumers remain vulnerable to infringement claims and 

owners of proprietary technology must assert their rights ex post to 

secure compensation. Where users develop their own technologies 

without copying an infringed patent, they enjoy no “clean room” defense.69 This has likely generated a perception — whether justified or 

not — that some patents do not drive innovation and protect against 

copying, but simply tax those who develop and market technologies.70

 64. FED. TRADE COMM’N, supra note 10, at 80–89.

65. See id. at 81–82.

66. State St. Bank & Tr. Co. v. Signature Fin. Grp., Inc., 149 F.3d 1368, 1373 (Fed. Cir. 

1998), overruled by In re Bilski, 545 F.3d 943 (Fed. Cir. 2008), aff’d on other grounds, 

Bilski v. Kappos, 561 U.S. 593 (2010).

67. See, e.g., Kevin M. Baird, Business Method Patents: Chaos at the USPTO or Business as Usual?, 2001 U. ILL. J.L. TECH. & POL’Y 347, 348 (2001); Megan M. La Belle & 

Heidi Mandanis Schooner, Big Banks and Business Method Patents, 16 U. PA. K. BUS. L.

431, 446–48 (2014); Jeff Kettle, Congress Giveth and Taketh Away: A Look at Section 18 of 

the America Invents Act and the Review of Business Method Patents, 94 J. PAT. &

TRADEMARK OFF. SOC’Y 201, 204, 206 (2012). There is evidence, however, that Internet 

business method patents issuing after State Street Bank were not of lower quality than the 

average patent. See John R. Allison & Emerson H. Tiller, The Business Method Patent 

Myth, 18 BERKELEY TECH. L.J. 987, 1077–78 (2003).

68. See Mark A. Lemley, Ignoring Patents, 2008 MICH. ST. L. REV. 19, 19–21 (2008).

69. See id. at 25.

70. See, e.g., David S. Olson, On NPEs, Holdups, and Underlying Faults in the Patent 

System, 99 CORNELL L. REV. ONLINE 140, 143–45 (2014).
No. 1] Patent Rights in a Climate of Skepticism 13

Two contemporary developments have added urgency to claims 

of a “patent crisis.” First, competition in the lucrative smartphone industry produced aggressive litigation on an international scale.71 Apple accused Samsung of copying proprietary features of its iPhone and 

other products.72 In turn, Samsung sued for infringement of its standard-essential wireless technology.73 That global litigation accompanied infringement lawsuits involving Motorola Mobility, Microsoft, 

Nokia, and HTC. The need for strategic patent holdings drove enormous patent-portfolio acquisitions, such as the Rockstar consortium’s 

$4.5 billion acquisition of Nortel’s 4G wireless technology and 

Google’s $12.5 billion purchase of Motorola and its 17,000-patent 

portfolio.74 The scale and expense of the patent war prompted commentators to openly question whether the patent system was doing 

anything other than suppressing competition and innovation; a 2012 

New York Times article, for instance, observed that Apple and 

Google had spent less on R&D during 2011 than they had on patent 

acquisitions and litigation.75

The second major development was the emergence of patentassertion entities (“PAEs”) as a new business model. Such companies 

neither sell products incorporating technology nor build their patent 

holdings via prosecution. Rather, they buy patents reading on goods

that already exist in the marketplace and then seek to monetize them. 

By not practicing technology, PAEs immunize themselves from infringement countersuits. Similarly, because they do not operate in 

product markets, they are resistant to traditional antitrust claims.76

 71. For summaries of the “smartphone patent wars,” see, for example, Patrick Holvey, 

The Anti-Clone Wars: Towards a Reinvigoration of the Doctrine of Patent Misuse and the 

Per Se Illegality of Anti-Cloning Provisions, 10 WASH. J.L. TECH. & ARTS 153, 156–59 

(2015); Kurt Eichenwald, The Great Smartphone War, VANITY FAIR (May 3, 2014), 

http://www.vanityfair.com/news/business/2014/06/apple-samsung-smartphone-patent-war 

[http://perma.cc/ZYM4-GM9A]; Agustino Fontevecchia, Smartphone Wars: Who Wins and 

Who Loses from the Apple-Samsung Patent Ruling, FORBES (Aug. 27, 2012), 

http://www.forbes.com/sites/afontevecchia/2012/08/27/smartphone-wars-who-wins-andwho-loses-from-the-apple-samsung-patent-ruling/#6f3e0a9714fa [https://perma.cc/CAH3-

9ZTZ].

72. Nilay Patel, Apple Sues Samsung: A Complete Lawsuit Analysis, VERGE (Apr. 19, 

2011), http://www.theverge.com/2011/04/19/apple-sues-samsung-analysis [https://perma.cc/

EH7N-FSW8].

73. Britten D. Sessions & Wei Y. Lu, Goliath v. Goliath Fallout: Repercussions of Apple 

v. Samsung, 41 LINCOLN L. REV. 1, 14–15 (2014).

74. James M. Rice, The Defensive Patent Playbook, 30 BERKELEY TECH. L.J. 725, 757 

(2015).

75. Charles Duhigg & Steve Lohr, The Patent, Used as a Sword, N.Y. TIMES (Oct. 8, 

2012), http://www.nytimes.com/2012/10/08/technology/patent-wars-among-tech-giantscan-stifle-competition.html?_r=0 [https://perma.cc/XX5E-BXEF].

76. See, e.g., Intellectual Ventures I LLC v. Capital One Fin. Corp., No. 1:13-cv-740-

AJT/TRJ, 2013 WL 6682981, at *7 (E.D. Va. Dec. 18, 2013) (rejecting an antitrust theory 

against a large patent aggregator). But see Intellectual Ventures I LLC v. Capital One Fin. 

Corp., 99 F. Supp. 3d 610, 622–24 (D. Md. Mar. 2, 2015) (finding antitrust counterclaims 
14 Harvard Journal of Law & Technology [Vol. 30

There is dispute as to whether PAEs efficiently compensate inventors 

who could not otherwise afford to enforce their rights or whether 

PAEs suppress innovation by taxing independent innovation. Critics 

accuse PAEs that buy and assert patents of high-tech extortion — a 

characterization that PAEs obviously reject. In any event, PAEs have 

been controversial and their practices have spurred claims that the 

patent system has been abused. Indeed, even the White House has 

condemned some PAE conduct.77 Operating companies’ allegedly 

partnering with PAEs through “privateering” agreements to pool and 

assert patents against the assignor’s competitors has fueled the 

flames.78

The upshot of these developments is widespread and entrenched 

skepticism of the patent system. Claims that the patent regime should 

be reworked, or even abandoned entirely, arise with greater frequency 

and appear to gain more traction, but debate founded on facts is rare. 

The next Part of this Article explores the theoretical and empirical 

evidence that underlies why robust patent rights remain essential to an 

effective innovation policy.

III. THE ECONOMIC EFFECTS OF PATENT RIGHTS

The essential question is whether patents enhance innovation. 

Theory suggests that patents may variously boost and hinder R&D 

depending on a host of factors. Econometric and survey evidence hint 

at an answer but do not establish it irrefutably. The uncertainty is unfortunate and feeds debate, but it does not excuse ignorance or guess 

work in formulating innovation policy. Combined with economic theory and common sense, existing empirical evidence can support at 

least partially informed decision-making. As explained below, econometric work does not answer every material question — or even 

most of them — but it does allow policymakers to reject calls for outright patent abolition and permits them to make more informed judgment calls at the margin of patent policy.

 based on monopolization of an upstream technology-licensing market through targeted 

patent aggregation to be plausible).

77. Gene Sperling, Taking on Patent Trolls to Protect American Innovation, THE WHITE 

HOUSE (June 4, 2013, 1:55 PM), http://www.whitehouse.gov/blog/2013/06/04/takingpatent-trolls-protect-american-innovation [https://perma.cc/8GRC-G3CN].

78. See, e.g., Joshua D. Wright & Douglas H. Ginsburg, Patent Assertion Entities and 

Antitrust: A Competition Cure for a Litigation Disease?, 79 ANTITRUST L.J. 501, 502 

(2014).
No. 1] Patent Rights in a Climate of Skepticism 15

A. The Economic Relationship Between Patents, Innovation, 

and Welfare

A basic economic premise underlies the patent system: technologies are expensive to invent but easy to copy. Thus, absent a Pigovian 

subsidy or a property right,79 positive externalities will cause suboptimal investment in innovation.80 This is the classic “public goods”

narrative, which warns that easily appropriated information will be 

under-produced in a free market. One solution is a patent that allows 

an inventor to prevent third parties from copying her technology. That 

preventative rationale underlies patent systems around the world, perhaps also reflecting an intuition that inventors deserve exclusive rights 

against free riders who would rather take others’ ideas than create 

their own.

In some important industries, public-goods theory accurately captures the nature of invention. The standout example is pharmaceuticals, in which private firms pour billions of dollars into R&D.81

Successful drugs are susceptible to reverse engineering at relatively 

modest cost by generic firms. It is widely understood that, absent an 

alternative reward structure like regulatory exclusivity or suitably tailored prizes, innovation in the life sciences industry would suffer catastrophic decline without patent protection.82

Unfortunately, the classic narrative fails to reflect real-world 

complications that often arise outside of the life sciences. The workings of some technologies — especially methods used to build products — are not discernible at a low cost relative to the expense of 

initial invention. In some such cases, inventions are not public goods 

at all, meaning that trade-secret protection allows inventors to appropriate the value of their discoveries. Even if third parties can ultimately decipher a technology through reverse engineering, the cost and 

time of doing so may allow the inventor to secure the necessary financial return to have induced efforts to invent ex ante. Elsewhere, copying is feasible, but its impact on incentives to invent may still be 

modest. For instance, in settings where innovation entails rapid in-

 79. See Lily L. Batchelder et al., Efficiency and Tax Incentives: The Case for Refundable 

Tax Credits, 59 STAN. L. REV. 23, 44 (2006) (explaining that “Pigouvian subsidies correct 

for positive externalities by subsidizing the desired behavior so that the market price reflects 

the social value of the good”).

80. See Kenneth J. Arrow, Economic Welfare and the Allocation of Resources for Invention, in THE RATE AND DIRECTION OF INVENTIVE ACTIVITY: ECONOMIC AND SOCIAL 

FACTORS 609, 609 (1962).

81. See PHRMA, 2015 PROFILE BIOPHARMACEUTICAL RESEARCH INDUSTRY 35 (Apr.

2015), http://www.phrma.org/sites/default/files/pdf/2015_phrma_profile.pdf [https://

perma.cc/EM2E-WN5V] (reporting that the average cost of developing a drug–including 

failure costs–from the 2000s to the early 2010s was $2.6 billion).

82. See Burk & Lemley, supra note 2, at 1586, 1615-1619.
16 Harvard Journal of Law & Technology [Vol. 30

cremental improvement over the status quo, an inventor’s reward may 

lie in being the first to market the latest technology.83 That result is 

pronounced in network industries, where first-mover advantage can 

bestow great benefits.84 More generally, competition itself can drive 

firms to devote R&D to improving their product offerings. Darwinian 

survival may be among the most powerful incentives to invent.85

Those complicating factors do not suggest that patents are unimportant. Rather, they reveal that neither all nor even most inventions 

fall into the neat category of “public goods.” Thus, patents form part 

of a larger universe of incentives — competition, first-mover advantage, trade-secret protection, and beyond — that collectively bestow the net incentive to invent. Sometimes, the absence of patent 

protection would not lead inventors to abandon R&D investment, 

such as where the expected value of R&D without patents exceeds the 

innovator’s reservation return.86 Nevertheless, we would expect that 

introducing patents would increase the net incentive to invent a firstgeneration technology. 

Other things being equal, strengthening the patent grant will enhance the incentive to invest in R&D to create a pioneer good or 

method. By giving an inventor a broader right to exclude, patent law 

increases the expected value of innovating. One tradeoff is that broadening the exclusive right increases the deadweight loss generated by 

any market power that flows from the patent.87 When more competition in a product market increases social welfare — as is likely the 

case in markets that are not natural monopolies — then it is possible 

to enhance efficiency by narrowing the patent grant, but only if the 

welfare benefits of greater competition exceed the diminished incentive to invent.88

The discussion thus far frames the welfare issue as whether increased patent scope raises efficiency, by weighing the creation of 

value through enhanced innovation against the reduction of value 

through product-market competition. A complex literature has 

emerged on how best to adjust the two levers of a patent’s duration 

 83. See BURK & LEMLEY, supra note 48, at 43–44.

84. See, e.g., Ashutosh Bhagwat, Unnatural Competition?: Applying the New Antitrust 

Learning to Foster Competition in the Local Exchange, 50 HASTINGS L.J. 1479, 1494 

(1999).

85. See, e.g., J. Jonas Anderson, Secret Inventions, 26 BERKELEY TECH. L.J. 917, 950 

(2011).

86. See, e.g., Lori B. Andrews, The ‘Progress Clause’: An Empirical Analysis Based on 

the Constitutional Foundation of Patent Law, 15 N.C. J.L. & TECH. 537, 566–67 (2014).

87. It bears emphasizing that a patent grants market power only if there is consumer demand for the claimed product or method and, after the patent issues, there are no good substitutes for the claimed invention. See Ill. Tool Works Inc. v. Independent Ink, Inc., 547 

U.S. 28 (2006) (holding that patents do not presumptively confer market power).

88. See, e.g., Vincenzo Denicolo, Patent Races and Optimal Patent Breadth and Length, 

44 J. INDUS. ECON. 249, 263 (1996).
No. 1] Patent Rights in a Climate of Skepticism 17

and breadth to maximize economic welfare.89 The goal is to bestow 

the requisite expected return on inventors while minimizing the 

deadweight loss imposed by patent protection.90

There is, however, another complicating factor. Innovation is 

generally cumulative, meaning that it builds on the prior art. A single 

act of invention can have spillover effects on subsequent inventions, 

as when — for example — U.S. military spending yields distinct private-market applications or Tesla’s research on car batteries produces 

Solar Roof and Powerwall technologies. Often, the inventor and improver are not the same entity. Hence, expanding patent scope not 

only diminishes competition in the downstream product market but 

might also affect how sequential innovation may unfold. Theoretically, a broad patent may limit the claimed invention’s spillover effect. 

Innovation sometimes entails sporadic, transformative leaps over 

the status quo, and, in those instances, the optimal scope of pioneer 

patents depends on the reward/deadweight-loss tradeoff just discussed. More often, though, an invention entails a modest step beyond 

the prior art, with innovation flowing through a steady stream of incremental improvements that build on prior work. The question then 

becomes how best to direct the path of technological development. 

One answer is to grant broad exclusive rights to the inventor of the 

breakthrough technology, thus allowing her to direct future improvement. This avoids divided ownership rights that would exacerbate 

coordination challenges and produce negative externalities. From that 

perspective, it would be a mistake to grant the pioneer inventor a narrow right that leaves improvers free to practice their claimed refinements without the first inventor’s permission.

Law professor Edmund Kitch famously argued that a pioneer inventor, bestowed with broad patent rights, can best coordinate his 

technology’s development.91 There is reason to think that this avenue 

works well when transaction costs are surmountable, so that it is feasible for the pioneer both to identify suitable improvers and to negotiate licenses with them. In industries where patent rights are relatively 

clear and discrete in number relative to a sold product, and where in-

 89. See, e.g., Richard Gilbert & Carl Shapiro, Optimal Patent Length and Breadth, 21 

RAND J. ECON. 106 (1990); Paul Klemperer, How Broad Should the Scope of Patent Protection Be?, 21 RAND J. ECON. 113 (1990); Frederic M. Scherer, Nordhaus’ Theory of 

Optimal Patent Life: A Geometric Reinterpretation, 62 AM. ECON. REV. 422 (1972).

90. See Gideon Parchomovsky & Peter Siegelman, Towards an Integrated Theory of Intellectual Property, 88 VA. L. REV. 1455, 1462 (2002) (explaining that patents can create 

deadweight loss “because some consumers who would be willing to pay more for the product than its marginal cost are unable to purchase it from the monopolistic patentee; the gains 

from trade that would be available in a competitive market are lost as a result of the patentee’s monopoly”).

91. Edmund W. Kitch, The Nature and Function of the Patent System, 20 J.L. & ECON.

265, 276 (1977) (noting that a single inventor with broad property rights can best coordinate 

development of technology). 
18 Harvard Journal of Law & Technology [Vol. 30

novation tends not to advance rapidly, broad patents likely provide the 

breakthrough inventor an appropriate reward and direct follow-on 

improvements. 

Matters become more complicated, however, when innovation is 

continuous, widespread, and rapid.92 In such cases, transaction costs 

rise and make it more difficult for a pioneer to identify and negotiate 

with the full universe of suitable improvers.93 Some economic literature predicts that, in such contexts, a broad pioneer patent may inhibit 

innovation by suppressing follow-on innovation.94 The problem may 

be that although the first inventor has ample incentive to devote the 

requisite R&D, subsequent improvers may not. If improvers could not 

market their second-generation technologies without a license to an 

earlier pioneer patent, they may have a weak bargaining position. Unable to secure a sufficient proportion of the value of improvements, 

follow-on inventors may decline to invest in socially worthy research.95 An obvious “solution” would be to narrow pioneer patents, 

yet doing so may inefficiently compromise incentives to invent firstgeneration technologies.96

Problems also arise when the number of discrete, patent-eligible 

technologies residing within a single product increases. In times past, 

many inventions were mechanical and the object of a small number of 

patents.97 Today, with the rise of microelectronics and software, hightech products routinely implicate thousands of patents each.98 If ownership rights in those technologies are dispersed, the result is a 

Cournot complements problem.99 As complementary assets under 

divided ownership, such patents hinder technology firms that want to 

manufacture and sell new-generation products to consumers. Under 

atomized ownership, each owner of a complementary patent will 

charge its own monopoly price, disregarding the negative externalities 

of that pricing decision on demand for licenses to other complementary patents. The result may be royalty stacking, in which technology 

 92. See Mark A. Lemley, The Economics of Improvement in Intellectual Property Law, 

75 TEX. L. REV. 989, 1044–62 (1997).

93. Id. at 1048–72.

94. See Merges & Nelson, supra note 8, at 870. 

95. See Suzanne Scotchmer, Standing on the Shoulders of Giants: Cumulative Research 

and Patent Law, 5 J. ECON. PERSP. 29, 32 (1991); see also James Bessen & Eric Maskin, 

Sequential Innovation, Patents, and Imitation, 40 RAND J. Econ. 611, 611 (2009) (arguing 

that patent protection is not as useful in spurring innovation that is both sequential and complementary).

96. See Scotchmer, supra note 95, at 39.

97. See Merges, supra note 61, at 585 (“[F]or Jefferson, if you put technology in a bag 

and shook it, it would make some noise.”); Mark A. Lemley & Carl Shapiro, Patent Holdup 

and Royalty Stacking, 85 TEX. L. REV. 1991, 1992 (2007).

98. See, e.g., Michael A. Carrier, Resolving the Patent-Antitrust Paradox Through Tripartite Innovation, 56 VAND. L. REV. 1047, 1091 (2003); Mark A. Lemley & A. Douglas 

Melamed, Missing the Forest for the Trolls, 113 COLUM. L. REV. 2117, 2174 (2013).

99. See Lemley & Shapiro, supra note 97, at 2013.
No. 1] Patent Rights in a Climate of Skepticism 19

users must separately negotiate licenses from many different sources 

to sell a given product.100 Related to that issue is the anticommons 

problem, which arises when property rights become narrow and numerous to the point that transaction costs inhibit valuable exchange. 

The fact that some patents employ vague claim language exacerbates 

the problem, as patents’ claims may overlap with one another, further 

frustrating efforts to negotiate clearing positions. Such conditions can 

result in a “patent thicket” through which firms wishing to market 

new products must wade.101

Although royalty-stacking and anticommons phenomena hinder 

the efficacy of the patent system, they do not mean that patents inhibit 

innovation overall. To navigate high-transaction-cost licensing environments, technology companies use private-ordering solutions such 

as patent pools, portfolio cross licenses, and standard-setting organizations.102 New business models have emerged to bridge the gap between infringed IP rights and technology users. Some of these models 

are controversial, most notably PAEs. Other companies, like defensive patent-buying funds, focus on achieving clearing positions rather 

than asserting patents and may facilitate the commercialization of 

technology.

103 The result of such collaborative efforts and new businesses may be a desirable flow of value to upstream inventors as well 

as active downstream commercialization of technology. Of course, no 

solution is perfect, and some of the private-ordering efforts discussed 

above may inhibit competitive entry into product markets.

Finally, the quality of issued patents may affect the social-welfare 

implications of the patent system. If a set of patents is likely to be invalid or not infringed, their collection and assertion against technology users that independently develop and market products are likely to 

suppress innovation.104 That effect is especially likely if the patent 

assertion takes place ex post — that is, after the accused infringers are 

already using the claimed technologies — rather than ex ante, when 

technology transfer flows from patentees to downstream firms that 

wish to commercialize inventors’ insights.105 In 2008, fellow economists Joseph Farrell and Carl Shapiro presented an economic model 

 100. See id. at 1993. 

101. See Carl Shapiro, Navigating the Patent Thicket: Cross Licenses, Patent Pools, and 

Standard Setting, 1 INNOVATION POL’Y & ECON. 119 (2000).

102. See id. at 122. 

103. See FED. TRADE COMM’N, supra note 10, at 65–66 (explaining that defensive aggregators acquire patents to “take them off the street”, making them unavailable to PAEs, and 

licensing them to their members).

104. See id. at 1; FED. TRADE COMM’N, TO PROMOTE INNOVATION: THE PROPER 

BALANCE OF COMPETITION AND PATENT LAW AND POLICY 5–7 (Oct. 2003),

https://www.ftc.gov/sites/default/files/documents/reports/promote-innovation-properbalance-competition-and-patent-law-and-policy/innovationrpt.pdf [https://perma.cc/QW8PHDR2].

105. See FED. TRADE COMM’N, supra note 10, at 31–72.
20 Harvard Journal of Law & Technology [Vol. 30

indicating that weak patents can have strong, adverse economic effects, “raising downstream marginal costs and thus moving the downstream price closer to the monopoly price.”106 They concluded that, at 

least as a matter of theory, “these effects do not merely worsen the ex 

post deadweight loss from patents. Perhaps worse, they distort the 

innovation incentives that patents are meant to provide.”107 Further 

still, weak patents may “lead to costly litigation, they can create a 

danger of hold-up (both of users and of subsequent innovators), and 

they can induce defensive patenting, which can itself lead to yet more 

weak patents in a vicious cycle.”108

This brief overview of the economics of patents and innovation 

reveals a complex, interconnected web of incentives that collectively 

spur or deter R&D investment. In this environment, generalizations 

and universal proclamations inevitably overlook nuances and important tradeoffs. The ideal patent grant in one industrial setting is 

unlikely to instill preferred incentives in dissimilar markets. Nevertheless, the economic literature yields valuable insights. Economic models predict that, for a given invention, expanding patent scope 

increases the incentive to invent. Weak patent protection may therefore lead to suboptimal investment in technological development.109

Theory suggests that heavily cumulative innovations change the nature of the optimal patent grant, but it does not support the idea that 

patent abolition is the preferred solution. Rather, adjusting the scope 

of pioneer patents may achieve a desirable balance between the original and follow-on inventors’ incentives. As to the royalty-stacking 

and anticommons effects that could arise in certain markets, economics suggests that vertical integration and suitable, inter-competitor 

collaboration may ameliorate those conditions and increase output.110

Finally, theory indicates the assertion of weak patents may retard innovation.111

Ultimately, of course, it is useful for policymakers to employ theory as a predictive tool in the absence of clear data. It also provides an 

organizing principle with which to analyze a complex body of incentive effects that individually point in different directions. But it is not 

sufficient to stop at theory to achieve the best policy outcome. One 

must also examine the empirical question that theory alone cannot 

answer: do patents actually enhance R&D, and is today’s U.S. patent 

 106. Joseph Farrell & Carl Shapiro, How Strong Are Weak Patents?, 98 AM. ECON. REV.

1347, 1362 (2008).

107. Id.

108. Id.

109. See generally James J. Anton et al., Policy Implications of Weak Patent Rights, 6 

INNOVATION POL’Y & ECON. 1 (2006).

110. See, e.g., Lemley & Melamed, supra note 98, at 2157–59.

111. See, e.g., Joseph Farrell & Carl Shapiro, How Strong Are Weak Patents?, 98 AM.

ECON. REV. 1347, 1361–62 (2008).
No. 1] Patent Rights in a Climate of Skepticism 21

system optimally tailored to maximize innovation? It is to those fundamental, factual questions that we now turn, beginning with a discussion of the econometric challenges that make facts difficult to disdiscern from the data.

B. Difficulties that Afflict Empirical Measurement of How Patents 

Affect Innovation

Before recounting the evidentiary literature on patents and innovation, it is worth explaining some of the econometric challenges. 

Patent systems have existed in various forms across many countries 

for over a century.112 One might imagine, then, that there would be 

abundant data to indicate whether patents drive technological advance. Unfortunately, several problems hinder the extraction of robust, usefully broad conclusions.113 Although many studies attempt to 

overcome those difficulties, generally their implications are susceptible to competing interpretations. That is because there are limits to 

what one can reliably draw from the empirical literature. 

As a threshold issue, it is difficult to measure innovation. Technological advance takes myriad forms, from subtle tweaks to manufacturing processes to pioneer inventions that give birth to previously 

unimagined products. Such eclectic improvements over the status quo 

are often not easily quantifiable. No database identifies every innovation in an economy.114 Unable to find data on innovation, econometricians must use proxies. Many studies use R&D expenditures, which 

are an input to the process that results in innovation.115 While somewhat useful, looking at inputs give researchers an imperfect view on 

the ultimate output of innovation. Another common proxy is productivity gains, which are difficult to measure accurately and to isolate.116

 112. See, e.g., Chris Dent, ‘Generally Inconvenient’: The 1624 Statute of Monopolies as 

Political Compromise, 33 MELB. U. L. REV. 415 (2009).

113. See generally Lisa Larrimore Ouellette, Patent Experimentalism, 101 VA. L. REV. 

65 (2015).

114. Nevertheless, some economists have made use of innovation surveys. See, e.g., Daniele Archibugi & Mario Pianta, Measuring Technological Change Through Patents and 

Innovation Surveys, 16 TECHNOVATION 451, 451 (1996); Stuart J.H. Graham et al., High 

Technology Entrepreneurs and the Patent System: Results of the 2008 Berkeley Patent 

Survey, 24 BERKELEY TECH. L.J. 1255, 1265 (2009); Dominique Guellec & Bill Pattinson, 

Innovation Surveys: Lessons from OECD Countries’ Experiences, 27 SCI. TECH. INDUS.

REV. 77, 78 (2001); see also Jacques Mairesse & Pierre Mohnen, Using Innovation Surveys 

for Econometric Analysis, in 2 HANDBOOK OF THE ECONOMICS OF INNOVATION 1130, 1131 

(2010) (explaining the uses and limitations of innovation surveys).

115. See, e.g., Iain Cockburn & Zvi Griliches, Industry Effects and Appropriability 

Measures in the Stock Market's Valuation of R&D and Patents, 78 AM. ECON. REV. 419, 

422 (1988).

116. See, e.g., Alexander Silverman, Note, Myth, Empiricism, and America’s Competitive 

Edge: The Intellectual Property Antitrust Protection Act, 43 STAN. L. REV. 1417, 1430–33 

& n.61 (1991).
22 Harvard Journal of Law & Technology [Vol. 30

Other proxies include R&D flows and innovation surveys.117 Finally, 

studies also use the number of patent grants, which are a measurable 

output of innovation.118 That proxy is also imperfect.119 First, patent 

counts omit potentially important innovation that occurs outside the IP 

system. Second, more patents do not necessarily mean more innovation. If a government strengthens a patent grant, for instance, then 

other things being equal it makes obtaining a patent more valuable. 

We would thus expect to see more people applying for patents and, in 

turn, more patents issued. That phenomenon may arise regardless of 

whether strengthening the patent grant enhances, reduces, or has no 

effect on innovation.

Another basic problem arises in measuring patent strength. To estimate the correlation between greater patent protection and more innovation, one must quantify the explanatory and dependent variables. 

A simple solution is to look at the patent term’s duration, but that factor alone fails to account for a host of qualities relevant to patent 

strength. The scope of an inventor’s exclusive right is especially important, but that is a probabilistic concept until the courts rule on infringement. Nevertheless, econometricians use the best proxies availavailable, including those for patent breadth. 

A further problem is a lack of heterogeneity in patent policies between countries.120 Common approaches deny empiricists natural experiments to test how a change in the patent system of an otherwisecomparable economy alters innovation vis-à-vis similar economies 

that did not make such a change. If otherwise similarly placed states 

adopted patent laws with differing approaches to scope, duration, eligibility, or remedies, then that situation would create useful natural 

experiments. Gauging the effects of different patent policies is more 

difficult under relative uniformity, which has accelerated under the 

Agreement on Trade-Related Aspects of Intellectual Property Rights 

(“TRIPS”).

121

 117. See, e.g., Bronwyn H. Hall et al., Measuring the Returns to R&D, in 2 HANDBOOK 

OF THE ECONOMICS OF INNOVATION 1034, 1067–70 (2010).

118. See, e.g., Paroma Sanyal, Understanding Patents: The Role of R&D Funding 

Sources and the Patent Office, 12 ECON. INNOV. & NEW TECH. 507, 507 (2003).

119. See, e.g., Zvi Griliches, Patent Statistics as Economic Indicators: A Survey, 28 J.

ECON. LITERATURE 1661, 1666 (1990); Ignatius Horstmann et al., Patents as Information 

Transfer Mechanisms: To Patent or (Maybe) Not to Patent, 93 J. POL. ECON. 837, 838 

(1985). Nonetheless, there is evidence that patent counts correlate with the introduction of 

new products. See generally William S. Comanor & F.M. Scherer, Patent Statistics as a 

Measure of Technical Change, 77 J. POL. ECON. 392 (1965). 

120. See Ouellette, supra note 113, at 68.

121. John F. Duffy, Harmony and Diversity in Global Patent Law, 17 BERKELEY TECH.

L.J. 685, 686–88 (2002); cf. Donald S. Chisum, Patentability Under TRIPS: The Need for 

Uniformity, 2 INDIAN J.L. & TECH. 1, 4 (2006) (arguing that full harmonization is warranted).
No. 1] Patent Rights in a Climate of Skepticism 23

Other statistical difficulties stymie efforts to measure the link, if 

any, between patents and innovation. For example, trying to estimate 

the relationship between the number of patents that firms acquire and 

the firms’ investment in R&D is complex. Simultaneity bias may arise 

if having more patents leads to more R&D and if greater R&D causes 

a firm to apply for more patents. In that case, patents would be both a 

cause and result of R&D, creating an endogeneity problem. Misspecifications may also occur. An omitted variable may drive both patent 

counts and R&D, biasing a measured correlation between patent 

numbers and R&D. In studies that try to explain innovation with multiple explanatory variables beyond patent strength, multicollinearity 

may arise if patent strength and the other explanatory variables are 

correlated with one another.

Most importantly, correlation does not imply causation. Suppose 

that time-series data revealed a statistically significant correlation between patent counts (the explanatory variable) and private R&D investment (the dependent variable). It is possible that the two variables 

trended in the same direction over time for reasons not captured in the 

model. For instance, non-IPR factors like macroeconomic growth may 

drive R&D and also spur firms to patent, potentially creating a meaningless correlation between patents and R&D. In short, even if studies 

consistently revealed a statistically significant correlation between 

patents and innovation, that observation would not necessarily mean 

that patents and innovation have any causal relationship. The outcome 

could be a zero-sum game, in which patents neither add to nor detract 

from scientific progress. 

Of course, it is certainly possible and even likely that patents may 

spur R&D and in turn innovation, such that a positive correlation 

would reflect that phenomenon. Clearly, empirical evidence that patent counts do not correlate with R&D would be telling, but most 

studies do not find such a result.122 The data and empirical techniques 

available to date do not allow economists to extrapolate irrefutable 

conclusions. Such limitations stem from the messy reality of studying 

variously incomplete, interconnected, fluid, and relatively homogeneous phenomena. Yet that does not mean we are unable to derive 

meaningful insights from the data. Economic theory in particular can 

help researchers to draw conclusions from statistical evidence that are 

open to competing interpretations. As Part IV explains, the better conclusion from the evidence to date is that a strong patent system is beneficial and should remain at the heart of U.S. innovation policy. 

 122. See infra Part III.C.1.a.
24 Harvard Journal of Law & Technology [Vol. 30

C. Econometric Studies Have Linked Patents to Innovation

In some commentators’ views, there is no empirical support for 

the proposition that patents spur innovation.123 That argument ignores 

abundant empirical work finding that patent strength and R&D expenditures are correlated.124 So, too, research shows that strong IP 

rights are associated with economic growth in developed economies.125 Firms with stronger patent holdings tend to perform better.126

Surveys reveal that patents contribute to incentives to invest, most 

acutely in the biopharmaceutical and medical device fields but elsewhere to varying degrees as well.127 There is also historical evidence 

connecting strong patent rights to technological advancement.

128

While the evidence is subject to competing interpretations — and 

even statistically significant correlations between patent counts and 

R&D are susceptible to competing interpretations129 — it is certainly 

consistent with the proposition that patents materially spur innovation. 

Coupled with the powerful economic rationale for a patent system and 

the demonstrably superior innovation in IPR-intensive industries, the 

most compelling reading is that patents serve a valuable function 

within a larger innovation platform. This does not mean that today’s 

patent system is perfectly calibrated, however. There is reason to 

think that proper reform could boost innovation even further. Nevertheless, calls for outright abolition, severe dilution, and even for a 

 123. See supra Part II.A.

124. See infra Part III.C.1.a.

125. Id.

126. See, e.g., Feng-Jui Hsu et al., An Empirical Study on the Relationship Between R&D 

and Financial Performance, 3 J. APPLIED FIN. & BANKING 107, 108 (2013) (finding that 

“firm performance is positively correlated with the number of patents the firm owns”); see 

also Gary L. Lilien & Eunsang Yoon, Determinants of New Industrial Product Performance: A Strategic Reexamination of the Empirical Literature, 36 IEEE TRANSACTIONS ON

ENGINEERING MGMT. 3, 3–8 (1989) (showing that firms with more patents are better able to 

innovate and improve existing products).

127. See infra Part III.C.1.c.

128. Beyond the sources discussed in Part III.C.1, infra, see B. ZORINA KHAN, THE 

DEMOCRATIZATION OF INVENTION: PATENTS AND COPYRIGHTS IN AMERICAN ECONOMIC 

DEVELOPMENT, 1790–1920 (2005) (exploring how the U.S.’s uniquely strong patent system 

in the nineteenth century played a role in the country’s technological development); see also

Naomi R. Lamoreaux & Kenneth L. Sokoloff, Inventors, Firms, and the Market for Technology in the Late Nineteenth and Early Twentieth Centuries, in LEARNING BY DOING IN 

MARKETS, FIRMS AND COUNTRIES 19, 19–25 (1999) (explaining how “an extensive trade in 

new technological ideas did develop over the course of the nineteenth century, supported by 

the patent system and the emergence of information channels and intermediaries that facilitated the sale of patents at arm’s length”). See generally Kenneth L. Sokoloff, Inventive 

Activity in Early Industrial America: Evidence from Patent Records, 1790–1846, 48 J.

ECON. HIST. 813 (1988) (linking patenting activity from 1790 to 1846 to expanding markets, which spurred incentives to invent).

129. See, e.g., David E. Adelman & Kathryn L. DeAngelis, Patent Metrics: The Mismeasure of Innovation in the Biotech Patent Debate, 85 TEX. L. REV. 1677, 1707 n.131 

(2007).
No. 1] Patent Rights in a Climate of Skepticism 25

targeted narrowing of the patent system by taking certain areas of inventive activity outside the scope of patent protection are unsupported 

by the ample evidence.

The following Section addresses the relevant empirical literature 

in four subparts. It begins by discussing the literature that examines 

the correlation between patent strength and R&D. It then addresses 

survey evidence of the patent system’s impact in inducing firms to 

innovate. Third, it summarizes key studies on the role that patents 

play for start-ups in attracting venture capital. Finally, it explores the 

empirical literature showing the circumstances in which patents can 

hinder innovation.

1. Do Patents Boost Innovation? Empirical Evidence

For ardent skeptics of the IP system, the admittedly imperfect 

empirical literature likely will not change their minds. It is possible to 

explain statistically significant correlations between patent strength 

and R&D as reflecting something other than a causal relationship between patents and innovation. And it is true that some of the most 

prominent studies collecting and analyzing cross-country data to glean 

insights into such correlations are now aged130. But claims that the 

incentive-to-invent rationale underlying the patent system lacks empirical support are simply incorrect.

Those who find the economic justification for a patent system 

convincing encounter much support in the relevant empirical research. 

As the following review shows, the evidence is consistent with the 

proposition that patents lead to greater investment in R&D. 

a. Many Studies Find a Statistically Significant Correlation Between 

Patent Strength and R&D Investment or Economic Growth

IP rights strength positively correlates with R&D investment, at 

least in developed countries.131 Two leading studies particularly warrant attention. 

 

130. See infra Part III.C.1.a.

131. See, e.g., JONATHAN ROTHWELL ET AL., BROOKINGS, PATENTING PROSPERITY:

INVENTION AND ECONOMIC PERFORMANCE IN THE UNITED STATES AND ITS METROPOLITAN 

AREAS 8 (2013) (“R&D spending since 1953 is highly correlated with patenting and the 

patent rate.”); John Bound et al., Who Does R&D and Who Patents?, in R&D, PATENTS,

AND PRODUCTIVITY 21, 51 (1984) (finding “a strong relationship” between firms that conduct R&D and that patent, and noting that prior work “has shown a strong contemporaneous 

relationship of R & D and patent applications”); Georg Licht & Konrad Zoz, Patents and 

R&D: An Econometric Investigation Using Applications for German, European and US 

Patents by German Companies, 49 ÉCONOMIE ET ÉCONOMÉTRIE DE L'INNOVATION 329, 350 

(1998) (finding “a close relationship between R&D and patents”); Ariel Pakes & Zvi Griliches, Patents and R&D at the Firm Level: A First Report 5 ECON. LETTERS 377 (1980) 
26 Harvard Journal of Law & Technology [Vol. 30

Using cross-country data from thirty-two nations on R&D investment and patent protection from 1981 to 1995, Kanwar and Evenson in 2003 concluded, “[t]he evidence unambiguously indicates the 

significance of intellectual property rights as incentives for spurring 

innovation.”132 They found that “[t]he strength of intellectual property 

protection is positively and significantly associated with R&D . . . . 

Thus, countries which provided stronger protection tended to have 

larger proportions of their GDP devoted to R&D activities.”133

A study by Park and Ginarte six years earlier created an index of 

patent strength using data from sixty countries from 1960–1990 “to 

determine the role of IP rights in economic growth.”134 The authors 

concluded that “IP [rights] affect economic growth by stimulating the 

accumulation of factor inputs like research and development capital 

and physical capital” and that IP rights’ “benefits to growth are from 

encouraging the research sector to invest and take risk,” except in developing countries.135

A host of other empirical work similarly finds a statistically significant relationship between patent strength and R&D investment. A 

2013 Brookings report observed, “[r]esearch has established that patents are correlated with economic growth across and within the same 

country over time” and “R&D spending since 1953 is highly correlated with patenting and the patent rate.”136 Studying U.S. data between 

1980 and 2010, the report concluded that “patenting is associated with 

higher metropolitan area productivity” and that “the most likely explanation is that patents cause growth.”137

In a 2012 study, Duguet and LeLarge examined the relationship 

between patents and innovation performance between 1997 and 1999 

for the French manufacturing sector.138 They concluded that “patents 

significantly promote product innovations but not process innovations.”139 In short, “patents do increase the private incentives to innovate, but through a specific, unbalanced, channel.”140

Studying fifty-eight countries’ data from 1980–2003, Hasan and 

Tucci found in 2010 that “countries hosting firms with higher quality 

 (finding a statistically significant relationship between a firm’s R&D expenditures and the 

number of patents it applied for and receives). 

132. Sunil Kanwar & Robert Evenson, Does Intellectual Property Protection Spur Technological Change?, 55 OXFORD ECON. PAPERS 235, 235 (2003).

133. Id. at 249–50.

134. Walter G. Park & Juan Carlos Ginarte, Intellectual Property Rights and Economic 

Growth, 15 CONTEMP. ECON. POL’Y 51, 51 (1997).

135. Id.

136. ROTHWELL, supra note 131, at 4, 8.

137. Id. at 15.

138. Emmanuel Duguet & Claire Lelarge, Does Patenting Increase the Private Incentives 

to Innovate? A Microeconometric Analysis, 107 ANNALS ECON. & STATS. 201 (2012).

139. Id. at 201.

140. Id. at 221.
No. 1] Patent Rights in a Climate of Skepticism 27

patents also have higher economic growth.”141 They also identified 

“some evidence that those countries that increase the level of patenting also witness a concomitant increase in economic growth.”142

In a 2011 study, Shih-tse Lo examined the effects of Taiwanese 

patent reform in 1986 in response to U.S. pressure, concluding that 

the “patent reforms stimulated R&D spending. Industries that were 

highly R&D-intensive experienced an increase in their patenting in 

the United States. The favorable impact was most pronounced in the 

electronic and electrical industry.”143

In two studies in the 1990s, Thompson and Rushing explored the 

relationship between patent protection and economic growth.144 Using 

data from 1970 to 1985, their 1996 study found evidence that “strong 

intellectual property rights laws and effective enforcement policies 

result in more rapid economic growth in countries with an initial level 

of [per capita] GDP greater than or equal to $3,400 [in 1980 dollars].”145 The authors explained this effect as presumably being due to 

the fact that “protection from patents is the foundation for payoffs to 

entrepreneurs starting off the chain of events that leads to economic 

expansion.”146 Expanding on those conclusions in a 1999 study, 

Thompson and Rushing sought further insight into the contribution 

that patents make to factor productivity growth.

147 They found that, 

“in wealthier countries, patent protection shares a positive relationship 

with changes in total factor productivity and, in turn, total factor 

productivity positive[ly] influences the rate of economic growth.”148

In short, “strong patent protection and enforcement do have a positive 

and significant impact on the growth of factor productivity.”149

In 1997, Gould and Gruben analyzed cross-country data on patent 

protection, the relative open and closed nature of each of ninety-five 

countries’ respective trade regimes, and country-specific characteristics.150 They found that “the degree of patent protection[] is an important determinant of economic growth.”151 Nevertheless, the 

strength of the effect they measured depended on whether the econo-

 141. Iftekhar Hasan & Christopher L. Tucci, The Innovation-Economic Growth Nexus: 

Global Evidence, 39 RESEARCH POL’Y 1264, 1264 (2010).

142. Id.

143. Shih-tse Lo, Strengthening Intellectual Property Rights: Experience from the 1986 

Taiwanese Patent Reforms, 29 INT’L J. INDUS. ORG. 524, 525 (2011).

144. Mark A. Thompson & Francis W. Rushing, An Empirical Analysis of the Impact of 

Patent Protection on Economic Growth: An Extension, 24 J. ECON. DEV. 67 (1999).

145. Id. at 68 (discussing Mark A. Thomspon & Francis W. Rushing, An Empirical Analysis of the Impact of Patent Protection on Economic Growth, 21 J. ECON. DEV. 61 (1996)).

146. Id.

147. See generally id.

148. Id. at 67.

149. Id. at 69.

150. David M. Gould & William C. Gruben, The Role of Intellectual Property Rights in 

Economic Growth, in DYNAMICS OF GLOBALIZATION AND DEVELOPMENT 209 (1997).

151. Id. at 210.
28 Harvard Journal of Law & Technology [Vol. 30

my in question was relatively open or closed, with the effect being 

stronger in the former situation.

152

In 1986, Hall, Griliches, and Hausman observed that “there does 

seem to be a rather strong contemporaneous relationship between R 

and D expenditures and patenting, which does not disappear when we 

control for the size of the firm, its permanent patenting policy, or even 

the effects of its R and D history.”153 Their findings showed “a persistent significant contemporaneous relationship of R and D and patenting.”154

In 1980, Pakes and Griliches examined a cross-section of 121 

medium and large U.S. firms between 1968 and 1975 to determine 

whether patents are a good indicator of inventive activity.155 Although 

they identified a need for longer and larger samples, they provisionally concluded that “patents do measure something systematic, something that is associated with R&D activity. This relationship is 

especially strong at the cross-sectional level, where it reflects reasonably permanent differences between firms.”156

Unsurprisingly, empirical evidence that patents drive innovation 

in pharmaceuticals is especially strong.157 More generally, there is 

evidentiary support for the core proposition underlying the economic 

case for patents: investment in R&D will be suboptimal if the investing firm has limited ability to internalize the ensuing value.158 Absent 

 152. Id. at 209.

153. Bronwyn H. Hall, Zvi Griliches & Jerry A. Hausman, Patents and R and D: Is 

There a Lag?, 27 INT’L ECON. REV. 265, 281 (1986).

154. Id. at 282.

155. See Pakes & Griliches, supra note 131. 

156. Id. at 381.

157. See, e.g., Edwin Mansfield, R&D and Innovation: Some Empirical Findings, in

R&D, PATENTS, AND PRODUCTIVITY 127, 142–43 (1984) (“[I]n the drug industry, patents 

seem to have a bigger impact than in other industries. According to the firms, about one-half 

of the patented innovations in our sample would not have been introduced without patent 

protection.”); Bronwyn H. Hall, Patents and Patent Policy, 23 OXFORD REV. ECON. POL’Y

568, 574–75 (2007) (commenting that patents spur R&D in biopharmaceuticals and medical 

instruments); Jean O. Lanjouw & Iain M. Cockburn, New Pills for Poor People? Empirical 

Evidence After GATT, 29 WORLD DEV. 265, 265, 287 (2001) (analyzing the introduction of 

drug-product patents in India, finding “some, although limited, evidence of increased R&D 

in the mid-to late 1980s which appears to have leveled off in the 1990s,” and finding with 

respect to malaria that, although an upward trend in research into treatments had recently 

disappeared, “it is hard to avoid the conclusion that the historical absence of IPRs played an 

important role in retarding the development of new treatments for this very important disease”); Yi Qian, Do National Patent Laws Stimulate Domestic Innovation in a Global Patenting Environment? A Cross-Country Analysis of Pharmaceutical Patent Protection, 

1978–2002, 89 REV. ECON. & STAT. 436, 436 (2007) (finding, in a study of 26 countries 

that established patent laws between 1978 and 2002, that “patent laws in nations with high 

levels of development, education, and economic freedom do stimulate innovation”). 

158. See, e.g., Emmanuel Dechenaux et al. Appropriability and the Timing of Innovation: 

Evidence from MIT Inventions, 1–2 (May 2003) (Working Paper), 

www.nber.org/papers/w9735.pdf; see also Emmanuel Dechenaux et al.,Appropriability and 

the Timing of Innovation: Evidence from MIT Inventions at 24 (Apr. 2003) 

https://smartech.gatech.edu/bitstream/handle/1853/10720/gt_tiger_appropriability.pdf.
No. 1] Patent Rights in a Climate of Skepticism 29

patent rights, firms redirect their R&D efforts toward technologies 

that they can protect as trade secrets.159 Further, there is evidence 

linking higher rates of patenting to greater productivity at the firm 

level.160 Moreover, stronger IP rights lead U.S. firms to increase overseas technology transfer.161

Finally, there is some evidence that patent rights correlate with 

greater innovation in developing countries, too. In a 2006 study, regressed data on seventy-nine countries showed that, 

Whilst the effect of IPR protection on growth depends upon the level of development, it is positively 

and significantly related to growth for low-and highincome countries, but not for middle-income countries. This suggests that, although IPR protection encourages innovation in high-income countries, and 

technology flows to low-income countries, middleincome countries may have offsetting losses from 

reduced scope for imitation.162

In 2005, Chen and Puttitanun analyzed data for sixty-four developing countries, finding “some evidence that innovations in developing countries are indeed positively and significantly impacted by 

IPRs, and the levels of IPRs exhibit a U-shaped relationship with per 

capita GDP.”

163

 (“Our empirical results provide strong support for the view that the ability to appropriate 

returns is important for inventions whose success is highly uncertain.”).

159. Petra Moser, How Do Patent Laws Influence Innovation? Evidence from Nineteenth-Century World’s Fairs, 95 AM. ECON. REV. 1214, 1214 (2005).

160. Anil B. Deolalikar & Röller Lars-Hendrick, Patenting by Manufacturing Firms in 

India: Its Production and Impact, 37 J. INDUS. ECON. 303, 303 (1989) (examining panel 

firm-level data from 1975 to 1979 from India and concluding that, “despite the limited 

protection of intellectual property rights in India, patenting is associated with a significant 

increase in total factor productivity growth at the firm level”).

161. See Lee Branstetter, Raymond Fisman & C. Fritz Foley, Do Stronger Intellectual 

Property Rights Increase International Technology Transfer? Empirical Evidence from U.S. 

Firm-Level Data 25 (Nat’l Bureau of Econ. Research, Working Paper No. 11516, July 

2005), http://www.nber.org/papers/w11516 [https://perma.cc/M6Q6-PXHD].

162. Rod Falvey et al., Intellectual Property Rights and Economic Growth, 10 REV. DEV.

ECON. 700, 700 (2006).

163. Yongmin Chen & Thitima Puttitanun, Intellectual Property Rights and Innovation 

in Developing Countries, 78 J. DEV. ECON. 474, 477 (2005); see also Keith E. Maskus & 

Mohan Penubarti, How Trade-Related Are Intellectual Property Rights?, 39 J. INT’L ECON.

227, 227 (1995) (finding that “increasing patent protection has a positive impact on bilateral 

manufacturing imports into both small and large developing economies”).
30 Harvard Journal of Law & Technology [Vol. 30

b. Some Studies Find a Statistically Insignificant Correlation Between 

Patent Strength and R&D Investment or Economic Growth

As the previous Section reveals, voluminous evidence links 

stronger patents with greater R&D investment at the firm level and 

richer macroeconomic growth. Policymakers should not take lightly 

the findings of that empirical literature, which leans heavily against 

any systematic weakening of patent rights, let alone abolition. Nevertheless, the econometric work to date is not unanimous in linking 

strong IP rights and innovation. The following Section explores leading work that has found no or statistically insignificant evidence of a 

relationship between patents and technological advance.

Sakakibara and Branstetter undertook an interesting study in 2001 

on the reform of the Japanese patent system, which took place under 

U.S. pressure.164 Prior to 1988, Japanese law permitted a qualifying 

inventor to obtain just one claim per patent.165 Under U.S. law, by 

contrast, a single patent typically included many independent and dependent claims.166 Also, the Japanese system allowed an inventor narrower exclusive rights limited to the used technology.167 The 1980s 

was an era of expanding patent rights in America, which encouraged 

other countries to follow suit.168 In 1988, Japan passed a law allowing 

one patent to include many claims, thus expanding the scope of a given patent.169 The authors interviewed key Japanese stakeholders and 

determined that the 1988 reform was indeed a boon to inventors seeking patents.170 The authors determined that it was more economical to 

obtain a single patent with multiple claims than several patents with 

one claim apiece, and the reforms materially increased the breadth of 

patent protection.171

If the theoretical causal relationship running from patent strength 

to R&D and innovation were true, then one would expect to see an 

increase in R&D or innovation post-1988 reform in Japan after controlling for other explanatory factors. While the 1980s were a time of 

generally rising R&D in Japan, Sakakibara and Branstetter nevertheless found no statistically significant evidence that patent reform plausibly contributed to greater R&D or innovation on the part of the 307 

public Japanese companies on which they collected data.172 The au-

 164. Mariko Sakakibara & Lee Branstetter, Do Stronger Patents Induce More Innovation? Evidence from the 1988 Japanese Patent Law Reforms, 32 RAND J. ECON. 77 (2001).

165. Id. at 79.

166. Id.

167. Id.

168. Id. at 78.

169. Id. at 79.

170. Id. at 80–81.

171. Id.

172. Id. at 86, 98–99.
No. 1] Patent Rights in a Climate of Skepticism 31

thors attributed particular significance to the lack of a spike in R&D at 

or around 1988. Further, while R&D spending by Japanese firms substantially increased in the early 1980s, there was a relative decline in 

1988 and 1989 and R&D investment did not increase again until 

1990.173

They concluded that “there was a broadly observed increase in 

R&D spending in the 1980s which largely predated the onset of patent 

reform in Japan. Robustness checks suggest that relatively little, if 

any, of the upturn can be reasonably ascribed to the change in Japan’s 

patent regime.”174 Sakakibara and Branstetter warned, however, that 

the 1988 reforms were “not a perfect natural experiment,” that their 

“failure to find an increase in firms’ innovative output or input in response to patent reform does not prove that there was no effect,” and 

that “it would be premature to generalize from [their] findings to other 

nations or other patent reforms.”175

Another illuminative study is Hall and Ziedonis’s empirical examination of patenting in the U.S. semiconductor industry between 

1979 and 1995.176 Unlike the study of Japan’s 1988 patent reforms, 

the semiconductor study finds mixed evidence on the incentive effects 

of stronger patents rights. First, it determined that “large-scale [semiconductor] manufacturers have invested far more aggressively in patents during the period associated with strong U.S. patent rights, even 

controlling for other known determinants of patenting.”

177 The evidence thus shows that U.S. semiconductor firms respond to changes in 

patent strength. Nevertheless, the evidence implies that the firms used 

patent holdings strategically, undertaking an arms war to secure market position vis-à-vis one another.178 That phenomenon may be a 

function of the cumulative and often-simultaneous nature of innovation in the semiconductor industry, which may make patents more 

useful as strategic assets than as a means for guarding quickly evolving technologies against appropriation. The authors also found, however, that “stronger patent rights are especially critical to these firms 

in attracting venture capital funds and securing proprietary rights in 

niche product markets.”179

In an extensive 2002 study, Josh Lerner engaged in a crosssectional analysis of 177 changes in patent strength across sixty coun-

 173. Id. at 88.

174. Id. at 92 (emphasis omitted).

175. Id. at 99.

176. Bronwyn H. Hall & Rosemarie Ham Ziedonis, The Patent Paradox Revisited: An 

Empirical Study of Patenting in the U.S. Semiconductor Industry, 1979–1995, 32 RAND J.

ECON. 101 (2001).

177. Id. at 104.

178. Id. at 125.

179. Id. at 104.
32 Harvard Journal of Law & Technology [Vol. 30

tries between 1850 and 2000.180 He found that a country’s increase in 

patent protection substantially affected patent filings in that country 

by foreign entities, but reduced patent filings by domestic residents 

and in Great Britain, to which he devoted individual attention.181 Consistent with economic theory predicting an inverse-U-shaped relationship between patent strength and innovation, he found that “patent 

protection-enhancing shifts have a lesser impact on innovation when 

the nation already has strong patent protection and when its per capita 

gross domestic product lags behind other nations.”

182 He concluded 

that “the failure of domestic patenting to respond to enhancements of 

patent protection, and the particularly weak effects seen in developing 

nations, were quite striking.”183

Also noteworthy is Petra Moser’s 2013 review of economic evidence on the relationship between patents and innovation.184 He concluded, 

Overall, the weight of the existing historical evidence suggests that patent policies, which grant 

strong intellectual property rights to early generations of inventors, may discourage innovation. On 

the contrary, policies that encourage the diffusion of 

ideas and modify patent laws to facilitate entry and 

encourage competition may be an effective mechanism to encourage innovation.185

In an earlier paper, which studied evidence on almost fifteen thousand

innovations among several countries at world’s fairs in 1851 and 

1876, the same author concluded that “patents help to determine the 

direction of technical change.”186

 180. Josh Lerner, Patent Protection and Innovation Over 150 Years (Nat’l Bureau of 

Econ. Research, Working Paper No. 8977, 2002), http://www.nber.org/papers/w8977 

[https://perma.cc/2U9C-N8PY].

181. Id. at 19–20, 27.

182. Id. at 2.

183. Id. at 28.

184. Petra Moser, Patents and Innovation: Evidence from Economic History, 27 J. ECON.

PERSP. 23 (2013).

185. Id. at 40.

186. Moser, supra note 159, at 1214.
No. 1] Patent Rights in a Climate of Skepticism 33

c. Surveys Reveal that Patents Are Critical to Innovation in the Life

Sciences Sector and Relevant in Other Industries, Albeit Less so than 

Other Factors

Many economists question the efficacy of surveys.187 Among 

other reasons, this is because what people say they will do often differs from what they will actually do, and thus market transactions reveal preferences more reliably than survey responses.188 Nevertheless, 

revealed preferences are not always available to researchers, who 

must therefore look to stated preferences. Given the ambiguous nature 

of empirical studies of patent strength and innovation, there is reason 

to survey innovators in an effort to determine which factors drive 

them to invest in R&D. 

Researchers have undertaken numerous surveys, but two in particular stand out: the 1994 Carnegie Mellon survey and the 1983 Yale 

survey.

189 This Section addresses each in turn, and concludes by referencing briefly several others. The most important takeaway is that 

patents are the principal means of protecting innovations in certain 

industries, especially in pharmaceuticals but elsewhere too, and of 

ancillary effectiveness compared to other appropriation mechanisms 

in other industries.190 These surveys support the U.S. patent system, 

which plays a material appropriation function worth protecting for 

innovations across industries. Plainly, patents increase the cost to 

competitors of imitating an innovator’s new products, thus making 

them a useful — if not always principal — means of protecting the 

results of R&D.191

 187. See, e.g., W. Kip Viscusi, Monetizing the Benefits of Risk and Environmental Regulation, 33 FORDHAM URB. L.J. 90, 108–09 (2006); Robert H. Frank & Cass R. Sunstein, 

Cost-Benefit Analysis and Relative Position, 68 U. CHI. L. REV. 323, 341 (2001). 

188. Viscusi, supra note 187. 

189. See generally Wesley M. Cohen et al., Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (or Not), (Nat’l Bureau of 

Econ. Research, Working Paper No. 7552, 2000); Richard C. Levin et al., Appropriating the 

Returns from Industrial Research and Development, 3 BROOKINGS PAPERS ON ECON.

ACTIVITY 783 (1987).

190. In addition to the Carnegie Mellon and Yale studies discussed below, see Anthony 

Arundel, The Relative Effectiveness of Patents and Secrecy for Appropriation, 30 RES 

POL’Y 611, 611 (2001) (analyzing data from the 1993 European Community Innovation 

Survey on almost 3,000 firms that engage in R&D, finding that “a higher percentage of 

firms in all size classes rate secrecy as more valuable than patents[,]” and concluding that a 

firm becomes less likely to rate “secrecy as more valuable than patents . . . with an increase 

in firm size for product innovations”).

191. See Edwin Mansfield, Mark Schwartz & Samuel Wagner, Imitation Costs and Patents: An Empirical Study, 91 ECON. J. 907, 913 (1981) (finding that patents increase imitation costs, though, “[w]ithin 4 years of their introduction, 60% of the patented successful 

innovations in our sample were imitated,” and noting that, in “the ethical drug industry, 

patents had a bigger impact on imitation costs than in the other industries, which helps to 

account for survey results indicating that patents are regarded as more important in ethical 

drugs than elsewhere”) (citation omitted).
34 Harvard Journal of Law & Technology [Vol. 30

The Yale study surveyed 634 American R&D executives in over 

100 manufacturing industries.192 The goal was to determine patents’

effectiveness in “preventing competitive imitation of a new process or 

product” as compared to secrecy, lead time, moving quickly down the 

learning curve, and sales or service efforts.193 Respondents provided a 

numeric response ranging from 1.0 for “not at all effective” to 7.0 for 

“very effective.”194 The study found that, for new methods, “patents 

were generally rated the least effective of the mechanisms of appropriation: only 20 percent of the lines of business surveyed rated process patent effectiveness in excess of 4.0.”

195 Product patents were 

different. For them, “[p]atents . . . were typically considered more 

effective than for processes,” likely because of “the greater ease and 

desirability of maintaining secrecy about process technology.”196 Still, 

“lead time, learning curves, and sales or service efforts were regarded

as substantially more effective than patents in protecting products.”197

The study observed that “[i]n only one industry, drugs, were product 

patents regarded by a majority of respondents as strictly more effective than other means of appropriation.”198 For “organic chemicals, 

plastic materials, and steel-mill products . . . most respondents rated 

patents as no less effective than the best alternative.”199

Eleven years later, the Carnegie Mellon study surveyed 1,478 

R&D labs in the U.S. manufacturing sector in 1994.200 The researchers asked firms to rate the effectiveness of different appropriability 

mechanisms for their product and method innovations, including patents, secrecy, lead time, and know-how. “Effectiveness” went to how 

much respondents believed that “patents protect [their] firm’s competitive advantage due to the patented inventions.”201

The study found that “among large firms, patents have the highest 

effectiveness scores in a number of industries, including drugs, toilet 

preparations, gum and wood chemicals, pipes/valves, oil field machinery, switchgear, and autoparts.”202 Further, “(while not being the 

top mechanism) patents have average scores of at least 50% in organic 

chemicals, fibers, turbines/generators, motors/industrial controls, and 

medical equipment.”203 Compared to the earlier Yale study, “patents 

are still not the dominant mechanism in most industries for protecting 

 192. Levin, supra note 189.

193. Id. at 784.

194. Id. at 793–94.

195. Id. at 794.

196. Id. at 795.

197. Id.

198. Id. at 796.

199. Id. at 796–97.

200. Cohen, supra note 189.

201. Id. at 11.

202. Id. at 12.

203. Id.
No. 1] Patent Rights in a Climate of Skepticism 35

product innovations, [but] it now appears that they can be counted 

among the major mechanisms of appropriation in a more sizeable minority of industries.”204 Interestingly, the respondents’ principal reported reason for applying for product patents (96%) and process 

patents (78%) was to prevent copying, with the motive of blocking 

rival patents being second.205 The least important reason for applying 

for patents, other than to measure internal performance, was to earn 

licensing revenue, with just 28% and 23% of respondents reporting 

that factor as a reason for patenting products and methods, respectively.206 Notably, the authors found “the prevention of suits to be one of 

the most important uses of patents across all industries.”207

Nevertheless, patents were not the most effective means of protecting innovations across all industries. The data revealed that “most 

firms in complex product industries do not consider patents, but first 

mover advantages, secrecy and the exploitation of complementary 

capabilities as the key means of protecting their inventions.”208 The 

authors stressed, however, that simply because respondents ranked 

one mechanism as being effective for a greater proportion of innovations does not imply “that other mechanisms are unimportant,” not 

least because firms employ an array of appropriability mechanisms.209

They also sought to answer a question not previously addressed: 

if patents are relatively ineffective in many industries for protecting 

returns to innovation, why do firms in those industries patent anyway?210 The answer: “firms can profit from patents in ways other than 

protecting the profits that may directly accrue to the commercialization or sale . . . of a patented innovation,” including “blocking rivals 

from patenting related inventions, protection against infringement 

suits, and using patents in negotiations over technology rights.”211 The 

authors concluded, in comparison to the Yale study of more than a 

decade before, “patents may be relied upon somewhat more heavily 

by larger firms now than in the early 1980s.”212

Another influential work beyond the Yale and Carnegie Mellon 

studies is Edwin Mansfield’s 1994 survey of one hundred U.S. firms 

in six international manufacturing industries.213 The Mansfield study, 

however, had a different focus. Instead of asking executives for their 

 204. Id. at 13.

205. Id. at 17–18.

206. Id. at 18.

207. Id. at 26–27.

208. Id. at 28.

209. Id. at 9.

210. Id. at 3–4.

211. Id. at 4.

212. Id. at 1.

213. Edwin Mansfield, Intellectual Property Protection, Foreign Direct Investment, and 

Technology Transfer (Int’l Fin. Corp. Discussion Paper No. 19, 1994).
36 Harvard Journal of Law & Technology [Vol. 30

views on the efficacy of patents as anti-expropriation mechanisms, or 

asking whether firms made R&D investments based on strong IP 

rights, Mansfield investigated how the strength of a country’s IP 

rights regime affected U.S. private-firm technology transfer and foreign direct investment into that country.214 He found that “the strength 

or weakness of a country’s system of intellectual property protection 

seems to have a substantial effect, particularly in high-technology 

industries, on the kinds of technology transferred by many U.S. firms 

to that country.”215 Further, “this factor seems to influence the composition and extent of U.S. direct investment there, although the size 

of the effects seems to differ from industry to industry.”216

A 1986 empirical study by Mansfield discerned the proportion of 

inventions developed in 1981–1983 that would not have been developed absent patent protection.217 He conducted a random sample of 

one hundred firms from twelve industries, identifying technologies 

that would not have been developed in the but-for world through the 

firms’ leading R&D executives.218 Mansfield found that patents were 

essential for the development and introduction of 30 percent or more 

of pharmaceutical and chemical inventions, and between 10 and 20 

percent of inventions in the petroleum, machinery, and fabricated 

metal product industries.219 Patent protection in other industries either 

was less important or was not essential at all for the development and 

introduction of new inventions in the studied period.220

Last, but certainly not least, Arora, Ceccagnoli, and Cohen conducted an influential study that estimated the “patent premium,”

meaning the degree to which patenting marginally increases the value 

of an innovation.221 To do so, they used data from the 1994 Carnegie 

Mellon survey discussed above.

222 They concluded that “patents are 

valuable for a subset of innovations, and consequently, patents do 

provide incentives for R&D.”223 They further found that, on average, 

“patents do not provide a positive (greater than unity) expected premium net of patent application costs in any industry except medical 

instruments. The net premium is around unity for biotech and pharmaceuticals, followed by computers, machinery, and industrial chem-

 214. Id.

215. Id. at vii.

216. Id.

217. Edwin Mansfield, Patents and Innovation: An Empirical Study, 32 MGMT. SCI. 173 

(1986).

218. Id. at 174.

219. Id.

220. Id.

221. Ashish Arora, Marco Ceccagnoli & Wesley M. Cohen, R&D and the Patent Premium, 26 INT’L J. INDUS. ORG. 1153 (2008).

222. Id. at 1154.

223. Id. at 1173.
No. 1] Patent Rights in a Climate of Skepticism 37

icals.”224 Their study did not suggest, however, that patents do not 

spur R&D in industries where the patent premium is slight and innovators rely on non-patent methods of appropriation to protect their 

inventions. “[E]ven in industries where the patent premium is lower 

and firms rely more heavily upon means other than patents to protect 

their inventions, such as electronics and semiconductors, our estimates imply that patents stimulate R&D, though less so.”225

d. Does Patent Strength Have an Inverse-U-Shaped Relationship with 

Innovation?

Theory suggests that expanding patent scope will not always enhance innovation.226 That result is intuitive. Strengthening patent protection should enhance the incentive to invent a new product or proprocess, but it may reduce the propensity to improve upon existing 

proprietary technologies. As the last Section explained, optimal patent 

scope depends in part on the ratio of initial-to-cumulative innovation, 

the number of follow-on innovators, and transaction costs. Kitch’s 

prospect theory, which recommends granting broad patents to initial 

inventors to allow them to control the path of subsequent improvements, is most likely to hold in particular circumstances: where innovation is capital intensive and lumpy — for example, subject to 

sporadic, but material, breakthroughs — subsequent incremental enhancements are modest, and transaction costs are surmountable.227

Those conditions exist sometimes, but not always. Where broad patents encumber follow-on R&D, it would be no surprise that expanding them further would not enhance net innovation.228 Yet there is to 

date limited evidence that reflects that theory. 

At least one study finds empirical support for the proposition that 

strengthening IP rights beyond a critical point may discourage innovation.229 To the extent that finding reflects a causal relationship, it may 

 224. Id. 

225. Id.

226. See, e.g., Chen & Puttitanun, supra note 163, at 476 (theorizing a U-shaped relationship between IPR strength and economic development).

227. See Burk & Lemley, supra note 2, at 1600–04, 1615–17; Mark A. Lemley, Ex Ante 

Versus Ex Post Justifications for Intellectual Property, 71 U. CHI. L. REV. 129, 133 (2004); 

see also John F. Duffy, Rethinking the Prospect Theory of Patents, 71 U. CHI. L. REV. 439 

passim (2004) (refining the argument in favor of prospect theory).

228. See Ted Sichelman, Commercializing Patents, 62 STAN. L. REV. 341, 380–83 

(2010).

229. See, e.g., Yi Qian, Do National Patent Laws Stimulate Domestic Innovation in a 

Global Patenting Environment? A Cross-Country Analysis of Pharmaceutical Patent Protection, 1978–2002, 89 REV. ECON. & STAT. 436, 436, 447, 449 (2007); see also Josh Lerner, Patent Protection and Innovation over 150 Years 2 (Nat’l Bureau of Econ. Research, 

Working Paper No. 8977, 2002) (“[P]atent protection-enhancing shifts have a lesser impact 

on innovation when the nation already has strong patent protection and when its per capita 

gross domestic product lags further behind other nations.”).
38 Harvard Journal of Law & Technology [Vol. 30

mirror evidence of an inverted-U-shaped relationship between product-market competition and innovation.230 Nevertheless, evidence to 

date that greater patent strength eventually weakens incentives to invent is thin. As explored above, empirical studies reveal a statistically 

significant relationship between patent strength and R&D in developed countries.231 That literature reveals no inverted-U-shaped relationship, as would exist if further strengthening of patent rights 

beyond a certain point correlated with diminished R&D expenditures. 

The implications one can reasonably draw from that literature are limited, however, in that the patent strength at issue may not have yet 

reached a critical tipping point. Further, it is conceivable that studies 

finding no statistically significant relationship between increased patent strength and R&D232 reflect a plateau in the relationship before 

further expansions in patent scope would correlate with reduced 

R&D.233 Ultimately, even in cumulative-innovation settings, evidence 

whether greater patent strength suppresses innovation is ambiguous.

234

e. Patents May Help Startups Secure Capital Funding and Compete

There is evidence that patents serve a material role in the startup 

process. A 2008 survey found that 76% of venture-backed startup 

managers reported that venture-capital investors consider patents important to funding decisions.235 That figure masked significant differences among industries, however, given that “60% of software firms 

reported that VC investors considered patents important, while that 

figure rose to 73% for Dun & Bradstreet (“D&B”) listed biotechnology firms and 85% for D&B medical device companies.”236 The tendency of patents to contribute to venture-capital acquisition, however, 

is not limited to the life sciences industries. A 2001 study of semiconductor patenting, for instance, concluded from interviews that strong 

patent rights were important to attracting venture capital.237 The au-

 230. See Philippe Aghion et al., Competition and Innovation: An Inverted-U Relationship, 120 Q.J. ECON. 701 (2005) (finding empirical evidence of an inverted-U-shaped relationship between product-market competition and innovation).

231. See, e.g., Kanwar & Evenson, supra note 132; Park & Ginarte, supra note 134; Hall, 

Griliches & Hausman, supra note 153.

232. See, e.g., Sakakibara & Branstetter, supra note 164.

233. Accord Walter G. Park, Intellectual Property Rights and International Innovation, 

in 2 INTELL. PROP., GROWTH AND TRADE 289 (Keith E. Maskus ed., 2007); Nancy T. Gallini, The Economics of Patents: Lessons from Recent U.S. Patent Reform, 17 J. ECON.

PERSP. 131, 139 (2002).

234. See Gallini, supra note 233, at 136.

235. Stuart J.H. Graham et al., High Technology Entrepreneurs and the Patent System: 

Results of the 2008 Berkeley Patent Survey, 24 BERKELEY TECH. L.J. 1255, 1307 (2009). 

236. Id.

237. Hall & Ziedonis, supra note 176.
No. 1] Patent Rights in a Climate of Skepticism 39

thors emphasized “the importance of patents as an imperfect but quantifiable measure of technology that enabled technology-based trades 

to be made in external markets, both in financial markets (venture 

capital) and with suppliers and owners of complementary technologies.”238

Of course, the efficacy of non-patent appropriation mechanisms 

differs from industry to industry.

239 Patents are not always well suited 

to driving software innovation, which tends to progress more rapidly 

than the prosecution process awards patents.

240 Further, the heavily 

cumulative nature of innovation in computer software suggests that 

patents should be narrow.241 Consistent with the survey evidence recounted above, first-mover advantage and competition are more likely 

to drive innovation in that sector than patent protection.242 It is thus 

unsurprising that patents serve a less critical function than some other 

factors for software firms in securing venture capital.243 A 2007 study 

found patents generally to be relatively unimportant to software startups in that respect, but it nevertheless identified two potential benefits 

of patent protection.244 First, patents may “support young firms in 

their efforts to compete” and, second, patents may “facilitate the intraindustry technology transfers upon which innovation depends in a 

realm of cumulative innovation.”

245 They conclude:

In the end, the point of this paper is that a serious 

debate about the propriety of patents in the software 

industry must account not only for the possibility 

that patents might impose substantial costs, but also 

for the possibility that they provide substantial 

benefits. Our paper contributes to the existing literature by providing a quantitative link between patenting behavior and firm success. Our work provides 

substantial evidence that patenting, at least in this industry, is an important part of a well-organized oper-

 238. Id. at 110.

239. See Burk & Lemley, supra note 2, passim. 

240. See, e.g., Colleen V. Chien, The Market for Software Innovation Through the Lens 

of Patent Licenses and Sales (Apr. 15, 2016) (unpublished draft), 

https://www.law.berkeley.edu/wp-content/uploads/2016/04/Chien-SW-Draft-2.pdf

[https://perma.cc/A7P3-74RN]. For a skeptical recent take on the patentability of software 

patents, see Intellectual Ventures I LLC v. Symantec Corp., 838 F.3d. 1307, 1322–29 (Fed. 

Cir. 2016) (Mayer, J., concurring).

241. See Dan L. Burk & Mark A. Lemley, Designing Optimal Software Patents, in

INTELLECTUAL PROPERTY RIGHTS IN FRONTIER INDUSTRIES 92 (2005).

242. See, e.g., Graham et al., supra note 235, at 1292–93.

243. See Ronald J. Mann & Thomas W. Sager, Patents, Venture Capital, and Software 

Start-ups, 36 RES. POL’Y 193, 193 (2007).

244. Id. at 207.

245. Id.
40 Harvard Journal of Law & Technology [Vol. 30

ation, rather than a random or happenstance occurrence.

246

Ultimately, the evidence on the role of patents in allowing firms 

to attract venture capital is akin to that contained in the broader econometric literature exploring the relationship between patents, R&D 

investment, and innovation. The evidence is strong in industries where 

innovation has public-good characteristics making suboptimal investment in R&D likely absent property protection.247 Outside of 

those settings, patents continue to play a material part of the larger 

innovation-incentive environment, but they do not dominate it. It is 

thus not surprising that the importance of patents to venture capital, 

compared to incentives to invent in the first place, is less pronounced 

in such markets. Nevertheless, it remains true that, on the whole, the 

patent system plays a valuable role in helping start-ups to attract venture capital.248

f. There Is Some Evidence that Some PAE Behavior Harms Innovation

This Section’s exploration of the empirical literature closes with a 

brief word on how PAEs affect innovation. This Article seeks to 

ground patent-based innovation policy in empiricism, and warns of 

the dangers of uncritically accepting popular narratives. A prominent 

example of strongly held views that lack a robust evidentiary foundation is PAEs, which are non-technology-practicing companies that 

aggregate and license patents under threat of suit. Many voices have 

argued that PAEs are harming inventive activity. Even the White 

House has proclaimed that PAEs exacted costs on innovation and 

economic growth.249 Much empirical work remains to be done, however, to discern the actual market effects of patent aggregators and 

licensors that bear the attributes of the PAE business model. 

 246. Id.

247. Graham et al., supra note 235, at 1307.

248. ARTI RAI ET AL., PATENT REFORM: UNLEASHING INNOVATION, PROMOTING 

ECONOMIC GROWTH & PRODUCING HIGH-PAYING JOBS, A WHITE PAPER FROM THE U.S.

DEPARTMENT OF COMMERCE 3 (2010) (“[O]wning patents is significantly correlated with 

success in acquiring first and additional rounds of VC financing.”) (citations omitted); see 

also Robert P. Merges, Uncertainty and the Standard of Patentability, 7 HIGH TECH. L.J. 1, 

11 n.30 (1992) (collecting sources).

249. EXECUTIVE OFFICE OF THE PRESIDENT, PATENT ASSERTION AND U.S. INNOVATION

(2013); see also Lauren Cohen et al., Patent Trolls: Evidence from Targeted Firms (Nat’l 

Bureau of Econ. Research, Working Paper No. 20322, July 2014); Stephen Kiebzak et al., 

The Effect of Patent Litigation and Patent Assertion Entities on Entrepreneurial Activity, 45 

RES. POL’Y 218, 218–19 (2015); Roger Smeets, Does Patent Litigation Reduce Corporate 

R&D? An Analysis of US Public Firms (Apr. 2014) (unpublished manuscript), 

http://ssrn.com/abstract=2443048 [https://perma.cc/DY5K-3WRB]; Catherine Tucker, Patent Trolls and Technology Diffusion: The Case of Medical Imaging (Apr. 14, 2014) (unpublished manuscript), http://ssrn.com/abstract=1976593 [https://perma.cc/KG5U-LGNR].
No. 1] Patent Rights in a Climate of Skepticism 41

To understand how reality can depart from conjecture, consider 

the Section 6(b) report on PAE conduct that the FTC released in October 2016.250 Although it does not address the efficiency of PAEs, 

the case study contributes significantly to the empirical literature, revealing in particular two different business models — Litigation PAEs 

and Portfolio PAEs. The study unearthed evidence that Litigation 

PAEs, which own relatively small patent holdings, generally sue 

without first negotiating a license and then settle quickly, usually at a 

sum that is below early-stage litigation costs.251 The report observed 

that such conduct is consistent with nuisance lawsuits. Based on that 

evidence, I supported modest reform proposals that would not affect 

the rights of larger patent holders.252

Portfolio PAEs, by contrast, behave differently. As I explained in 

a recent speech:

Portfolio PAEs appear to be sophisticated firms that 

aggregate hundreds or thousands of patents, license 

their portfolios for millions of dollars apiece, and 

capitalize themselves through institutional and other 

investors. Despite making up only 9% of the licenses 

in the study, they generated four-fifths of the revenue. They hire specialized IP-licensing professionals 

and typically negotiate licenses without first suing 

their prospective licensees. On average, the patents 

they acquired were over three years younger than 

those that Litigation PAEs obtained.

All told, Portfolio PAEs engage in conduct that is 

potentially consistent with an efficient aggregation 

service. Given the sums that change hands in armslength transactions between Portfolio PAEs and their 

licensees — amounts that seem often to exceed the 

cost of litigation — it appears that technology users 

paid sums that may reflect the quality of the licensed 

patents. Furthermore, in aggregating thousands of

presumably complementary patents into a single 

source, Portfolio PAEs may alleviate royaltystacking effects associated with divided ownership of 

complementary property rights.253

 250. PAE STUDY, supra note 13.

251. Id. at 3–4.

252. Id. at 8–13.

253. Maureen K. Ohlhausen, Commissioner, Fed. Trade Comm’n, Remarks Before the 

National Press Club: The FTC PAE Study in Context 11–12 (Oct. 20, 2016), 
42 Harvard Journal of Law & Technology [Vol. 30

I further explained that “it does not necessarily follow that Portfolio PAEs enhance social welfare.254” For example, “Portfolio PAEs 

may share little revenue with upstream inventors, many of their patents would not have been asserted but-for their accumulation, their 

licensees independently invented the claimed technologies, or that

their IPR holdings are of poor quality.”255 Nevertheless, the gulf in

characteristics between Litigation and Portfolio PAEs was telling and 

justified targeted, nuanced reform. With PAEs as with patent issues 

more generally, an evidentiary approach works best.

g. Summing Up

Overall, the empirical literature supports several conclusions. 

First, for the life sciences sector, there is a clear need for patents or for 

an alternative reward system to induce costly R&D vulnerable to appropriation. Second, although strong IP rights correlate with economic 

growth and R&D in developed countries, those empirical studies are 

open to competing interpretations due to potential endogeneity and 

simultaneity. Further, correlation does not imply causation. In short, 

those studies do not prove that a strong patent system leads to more 

innovation, though they are consistent with that proposition. Third, 

theory suggests that successive, incremental increases in patent scope 

may first increase innovation, later have little or no effect, and ultimately reduce innovation. Evidence of that phenomenon is consistent 

with the economic literature on cumulative innovation. 

Fourth, surveys show that patents are generally an ancillary factor 

in driving R&D outside of biopharmaceuticals, medical devices, and 

manufacturing industries. Nevertheless, this does not mean patents are 

unimportant or irrelevant elsewhere. Patents still play a role in allowing some inventors in software, semiconductor, and other industries to 

guard the fruit of their R&D. Patents may not always be the principal 

driver of innovation, but they may enhance technical advances nonetheless. It is no indictment of the patent regime to say that firms in 

some industries invest in R&D because competitive threats force them 

to do so, first-mover advantage and network effects make doing so 

profitable, or that firms obtain patents for the benefit of name recognition, rather than just because patents allow them to prevent appropriation. Fifth, patents play a material business role today from startups 

seeking venture capital to firms striving for market position through a 

patent arms race. Sixth, patents influence the path of innovation.

 https://www.ftc.gov/public-statements/2016/10/prepared-remarks-commissioner-maureenk-ohlhausen-ftc-pae-study-context.

254. Id. at 12.

255. Id. 
No. 1] Patent Rights in a Climate of Skepticism 43

Unsurprisingly, different observers interpret this literature differently. Hall and Harhoff conclude that “the bottom line from the empirical evidence is that the patent system provides clear incentives for 

innovation in only a few sectors, but that firms and industries do respond to its presence, both by making use of the system and by sometimes tailoring their innovative strategies to its presence.”256 They 

worry that patents form part of the institutional regime to which firms 

have adapted, such that changing that regime may impose “substantial 

short-term costs that may outweigh the long-term benefits.”257 Summarizing the literature, law professor Lisa Larrimore Ouellette concludes that “econometric studies show that patent laws affect inventor 

behavior, and there is some evidence that longer patent terms can 

promote more investment,” but observes that outside pharmaceuticals 

“the evidence is more ambiguous on whether patents even provide a 

net incentive for innovation.”258

Reviewing the relevant studies, Robert Hahn observes that the 

“literature on intellectual property rights has found few hard conclusions.”259 Nevertheless, he grants that some research “does indeed 

link stronger patent rights to social benefits” and “indicate[s] that 

R&D rises with IP [rights] strength.”260 Further, “the evidence clearly 

shows that allowing patents for federally funded research at universities and national labs has led to increased technology transfer to industry.”261 Other studies yield ambiguous results and some indicate 

that broad patents can inhibit cumulative innovation. Strong conclusions remain elusive because the available data is insufficient.262

As explained above, the statistical difficulties at play are formidable.263 It is no surprise that, in a 1958 study for Congress, economist Fritz Machlup wrote that:

If we did not have a patent system, it would be irresponsible, on the basis of our present knowledge of 

its economic consequences, to recommend instituting 

one. But since we have had a patent system for a 

long time, it would be irresponsible, on the basis of 

 256. Bronwyn H. Hall & Dietmar Harhoff, Recent Research on the Economics of Patents, 4 ANN. REV. ECON. 541, 549 (2012).

257. Id.

258. Ouellette, supra note 113, at 83.

259. Robert Hahn, The Economics of Patent Protection: Policy Implications from the Literature (Oct. 30, 2003) (unpublished manuscript), http://ssrn.com/abstract=467489 

[https://perma.cc/X3RB-8K82].

260. Id. at 39.

261. Id.

262. Id.

263. See supra Part III.B.
44 Harvard Journal of Law & Technology [Vol. 30

our present knowledge, to recommend abolishing 

it.264

Mazzoleni and Nelson echoed that view forty years later, concluding 

their literature review with the statement: “Our lack of knowledge 

here clearly limits our ability to analyze intelligently the current pressing issues of patent reform.”265

The problem for policymakers is how to extrapolate guiding principles from an empirical literature that makes causal inferences difficult. Patent strength correlates with R&D investment and economic 

growth in developed countries.266 Surveys reveal that patents are 

sometimes critical to particular inventions, sometimes of secondary 

importance, and on occasion irrelevant.267 Patents facilitate at least 

some forms of technology transfer and are useful to many start-ups in 

securing venture capital funding. Further, patents have long been an 

integral part of U.S. innovation policies that have produced tremendous results. Policymakers should not take these collective considerations lightly. In my view, they counsel in favor of robust IP rights

protection. Admittedly, this evidence does not exclude the possibility 

that patents and innovation do not have a causal relationship but 

econometric studies facing myriad statistical challenges rarely lend 

themselves to firm conclusions.

The questions at the frontier of today’s patent policy go beyond 

the binary choice of whether patents foster or retard innovation. Often, they involve incremental adjustments to patentable subject matter, 

permissible damage-calculation methodologies, pleading requirements, discovery limits, ownership-transparency rules, and the availability of cost-shifting for prevailing defendants, where the 

econometric literature does not provide clear answers. In those circumstances, it is to economic theory — coupled with priors, judgment, and inferences drawn from the evidence — that policymakers 

must turn.

Thus, while abolishing or severely diluting patents would be unjustified in light of the relevant evidence, it is more difficult to conclude whether more limited proposals are likely to enhance or reduce 

innovation at the margin. As the next Part explains, policymakers 

must still grapple with such questions, using guiding principles and 

judgment derived at least in part from a reading of the empirical and 

 264. SUBCOMM. ON PATENTS, TRADEMARKS, AND COPYRIGHTS, S. COMM. ON THE 

JUDICIARY, 85TH CONG., AN ECON. REVIEW OF THE PATENT SYS. 80 (Comm. Print 1958).

265. Roberto Mazzoleni & Richard R. Nelson, Economic Theories About the Benefits 

and Costs of Patents, 32 J. ECON. ISSUES 1031, 1051 (1998).

266. See supra Part III.C.1.a.

267. See supra Part III.C.1.c.
No. 1] Patent Rights in a Climate of Skepticism 45

theoretical evidence weighing on the relationship between patents and 

innovation.

IV. FASHIONING RESPONSIBLE POLICY FROM IMPERFECT 

INFORMATION 

As an FTC Commissioner, I vote on investigations, enforcement 

actions, amicus briefs, and Commission reports and filings that implicate patented technology. I also participate in conferences at which 

policymakers from around the world debate intellectual property matters in an effort to identify the institutional designs, rules, and normative principles that best serve their respective societies. The tendency 

of patents to advance or restrict consumer welfare is a recurring issue 

in this work. Like many policymakers who enjoy the privilege and 

responsibility of protecting consumers, I must form views on the role 

of patents as part of larger U.S. innovation policy. 

This Part explains why I read the theoretical and empirical literature explored in Part II to support strong patent rights. To be clear, 

however, favoring robust IP rights protection is not to embrace everbroader exclusive rights or to deny that some entities can abuse patents, as they can other property rights. It is rather to defend the fundamentals of the contemporary U.S. patent system, which has served 

the country well, to approach questions of reform cautiously, and to 

insist upon evidentiary showings of harm before allowing anecdotal, 

but quantitatively deficient, claims of patent abuse to drive policy. 

Consider what we know about patents and innovation, beginning 

with the relevant theory. First, when inventors invent, they discover 

new information. Some technologies — typically in-house manufacturing or design processes — resist copying and are thus prime candidates for trade-secret protection. Many other forms of information, 

however, are expensive to develop and have the public-good characteristic of non-excludability, making them vulnerable to third-party 

appropriation. A good example includes drug products. Because it is 

usually cheaper to copy a technology than to develop it in the first 

case, firms have an incentive to freeride on the R&D of their competitors. Thus, as with all activities generating positive externalities, 

suboptimal investment in the creation of technology is likely to result. 

Patent-created rights to exclude free-riders alleviate the public-goods 

issue, thus spurring more innovation.

Second, the simple act of invention itself carries limited social 

value until — or unless — it results in an applied technology.268

Commercialization often requires significant capital investment beyond what was necessary to obtain a patent. Yet making a technology 

 268. See PATENT NOTICE & REMEDIES, supra note 13, at 69.
46 Harvard Journal of Law & Technology [Vol. 30

into a working consumable product (or part of a product), obtaining 

regulatory approval, and bringing the good to market also create positive externalities. Third-party competitors can often free ride off an 

innovator’s efforts in marketing a new product. Patents incentivize 

firms to devote the necessary sums to transform an abstract technology claimed in a patent into a product that consumers can enjoy.

Of course, the public-goods and commercialization-incentive narratives will not always hold true. Nor will patents always be the driver 

of invention. First-mover advantage, Darwinian survival against advancing rivals, network effects, an ability independent of IP rights to 

protect a developed technology against copying, a desire to foster 

name recognition or reputation, and a host of other factors can spur 

innovation. In some settings, one would expect them to be a more 

powerful impetus toward innovation than patents. Yet, there is no reason to think that non-patent factors spurring innovation are so ubiquitous and powerful as to render patents superfluous always and 

everywhere. Indeed, survey evidence shows that patents are indispensable for innovation in some industries and still relevant as secondary 

appropriation mechanisms elsewhere.269 Competition, rivals’ difficulty in copying, and lag time will not instill sufficient incentives in 

some markets, especially those where the ratio of cost of invention to 

cost of copying is high or where commercialization costs are acute.270

In those settings, patents may serve a critical function in instilling 

otherwise-insufficient incentives to devote capital to R&D.

Although there are strong reasons in theory to expect that patents 

will spur innovation, the economic literature also warns that improperly calibrated patent rights can hinder technical advance.271 As to a 

standalone invention, expanding patent scope allows the inventor to 

extract a greater proportion of the technology’s social value, making it 

a more inviting R&D prospect in which to invest, but increasing the 

deadweight loss imposed by patent protection over a valuable technology for which no good substitutes exist.272 In many settings, however, it is a mistake to look at one invention divorced from its larger 

context. Heavily cumulative innovation is the norm in some industries, such as software. There, expanding patent scope may not only 

increase the static inefficiencies of monopoly pricing, but restrict follow-on R&D efforts. Hence, economic theory teaches that optimal 

patent scope requires careful regard for the idiosyncrasies of the innovation setting in which it arises. Nevertheless, the economic literature 

 

269. See supra Part III.C.1.c.

270. Id.

271. See, e.g., Merges & Nelson, supra note 8, passim.

272. Id. 
No. 1] Patent Rights in a Climate of Skepticism 47

does not suggest that patent protection is wholly inappropriate in cumulative-innovation environments.

It is important to evaluate that theory in the context of a longrunning U.S. innovation platform in which private industry has invested vast sums in reliance on the patent system and produced a 

stunning array of innovative technologies. Given this history, in my 

view, the economic rationale for patents is convincing and the notion 

that patents cripple innovation is strongly counterintuitive. Bringing 

rudimentary principles of decision theory to bear on questions of patent policy — in particular, the need to avoid false positives such as 

erroneously diluting patent rights that actually promote innovation —

it follows that responsible policymakers should be reluctant to diminish IP rights. 

With those considerations in mind, to justify a significant departure from the status quo, I would require evidence that patents suppress U.S. innovation. In some commentators’ views, the econometric 

literature fails to prove that patents enhance social welfare by spurring 

R&D to a degree that outweighs deadweight loss and restrictions on 

follow-on innovation.273 That analytic approach is off the mark. Instead, one must consider that we approach the patent-design question 

not from a platform that lacks patent rights, but from one in which 

they feature prominently. To justify a move from the current framework, which underpins the illustrious track record of U.S. innovation, 

a reasonable question is whether the evidence suggests that it is more 

likely than not that the net effect of patents is to suppress current levels of innovation. Such evidence is lacking. To the contrary, the empirical literature yields insights that should give patent skeptics pause 

in making their case.

Part II’s review of econometric studies demonstrated several findings. Patents exhibit consistent and statistically significant correlation 

with private R&D investment and with economic growth, at least in 

developed countries. It is difficult to overstate the importance of those 

findings. Although it is precarious to ascribe causal significance to 

such a statistical relationship, it is certainly important that there is an 

evident association between robust patent protection, R&D expenditures, and growth. Policymakers should thus be very cautious before 

concluding that the government could safely disregard, abolish, or 

dilute patents in that setting. Reviewing the literature, the worst that 

can be said is that empirical studies of nations that strengthened patents rights do not always find a corresponding rise in innovation. Yet, 

those studies found no evidence that magnifying the strength of patent 

protection reduced private-sector R&D or innovation. To the contrary, 

survey evidence reveals that patents are critical to inventions in the 

 273. See supra Part II.A.
48 Harvard Journal of Law & Technology [Vol. 30

life sciences industry and in some others. Elsewhere, patents play a 

secondary role to other factors that encourage innovation, but that 

does not make them irrelevant. There is also evidence that patents 

facilitate technology transfer and are important to startups that seek 

venture capital funding.

274

Those who favor patent abolition may strive to explain away correlations between patent strength and R&D. Because correlation does 

not imply causation, they may disregard the abundant evidence identifying a statistical relationship between patents and both R&D and 

economic growth. Also, evidence that patents are a but-for cause of 

innovation in important sectors of the economy may carry little 

weight for some commentators because government subsidies or alternative reward systems could recreate the full panoply of patentgenerated incentives. They may also argue that if patents are not the 

principal driver of innovation in other industries, taking them away 

should not materially affect the bottom line. 

Such interpretations of the evidence are unconvincing and strain 

to resolve every ambiguity against the proposition that the theorized 

relationship between robust patent rights and innovation is sound. 

More importantly, they do not provide a sound foundation for policymaking in this increasingly important part of the U.S. economy.

Those inclined to restrict or even remove patent rights face an 

important consideration independent of the question of whether the 

patent system’s net effect is to advance or inhibit technological advance. Specifically, there is ample evidence that firms respond to adjustments to the patent system. Even industries that enjoy antiappropriation mechanisms more effective than patents invest heavily 

in patents — if only to secure a strategic market position or otherwise 

facilitate commercialization or entry. Abolishing or seriously weakening the patent system would be extremely disruptive, imposing 

stranded costs that would almost certainly yield a net negative effect 

on R&D investment in the short run. Such a sweeping transformation 

of the new economy would change the kinds of inventions and technologies that markets would produce. Certainly, firms would direct 

their R&D away from easily appropriable technologies and toward 

those susceptible to trade-secret protection. Ultimately, there is little 

or no empirical basis to support the proposition that any long-term 

pro-innovative advantages stemming from a major loosening of patent 

rights would outweigh the short-run costs, which would likely be severe.

 274. It is also possible that patents serve a material role in disclosing useful technologies, 

though it is unclear whether most patents effectively perform that function. Daniel J. Hemel 

& Lisa Larrimore Ouellette, Knowledge Goods and Nation-States, 101 Minn L. Rev. 167 

(May 1, 2016), http://ssrn.com/abstract=2745632.
No. 1] Patent Rights in a Climate of Skepticism 49

With such high stakes, it is clear that any analysis by policymakers should feature error costs prominently. It is true that the empirical 

evidence to date remains incomplete about the precise circumstances 

in which incremental strengthening of patent rights enhances or hurts 

innovation. What we do know, however, is that the U.S. innovation 

system is an extraordinary success story and the envy of the world. 

For better or for worse, patents have always played a central role in 

America’s innovation platform. Today, it is impossible to ignore that 

the industries in which critics accuse patents of playing the most damaging role — smartphones, semiconductors, and computer software — are among the most innovative of all U.S. industries.275 They 

have achieved their unsurpassed technological progress within a setting of myriad patents. Whether that success is because of patents or 

notwithstanding them is a difficult question to answer. Certainly, one 

could argue that innovation would have been even greater without the 

claimed suppressive effect of patents. Resolving that claim requires 

proving a counterfactual. In the face of a system that works well, one 

should evaluate claims that a component of that system is seriously 

broken with a healthy dose of skepticism. Instead, those advocating 

serious patent dilution or abolition should present convincing evidence that patents have indeed suppressed innovation in that setting. 

Such evidence remains elusive, however. 

In short, I find that the U.S. innovation experience, theory, and 

econometric work combined are a powerful argument against abandoning or compromising the patent system. The focus instead should 

be on recalibration. Lawmakers should enhance quality, boost the 

clarity of patent disclosure, ratchet up obviousness and novelty conditions in industries subject to anticommons and royalty-stacking effects, encourage breakthrough technologies through suitable rights 

over pioneer inventions, and narrow patent scope in heavily cumulative fields of innovation that are subject to high transaction costs. The 

literature to date suggests that such tailored reforms are likely to boost 

innovation. Similarly, the law should suppress abuse of the patent 

system, rather than undertake its abolition.

V. CONCLUSION

The patent system has been part of the fabric of this country since 

its founding. Enjoying constitutional recognition, patents reflect 

American ideals of entrepreneurship, creative genius, moral desert, 

and private ownership rights. To this day, people associate patents 

with famous inventors like Benjamin Franklin, Thomas Edison, Alexander Graham Bell, Samuel Morse, and the Wright Brothers. That 

 275. See, e.g., Reply Submission, supra note 1, at 3. 
50 Harvard Journal of Law & Technology [Vol. 30

exalted role coincides today with an era of unprecedented technological advance. The last thirty years alone have seen explosive innovation in high-speed computing, the Internet, information technology, 

consumer electronics, medical technology, hybrid fuels, aviation and 

car design, and more besides. By any metric, the U.S. economy has 

been the foremost contributor to this scientific progress. Today’s 

groundbreaking innovators are disproportionately American. Companies like Apple, Google, IBM, Microsoft, Facebook, Uber, Tesla, 

General Electric, and Amazon blaze paths into the future. Many of 

those firms apply for, and receive, thousands of U.S. patents annually. 

What makes the U.S. economy such a compelling incubator of future technology? The answer lies in an exceptional innovation policy, 

which combines myriad factors to create an environment conducive to 

effective R&D. Political stability, property rights, competitive markets, a culture that rewards and celebrates ingenuity, bankruptcy laws 

tailored to spur calculated risk-taking, a disproportionate share of the 

world’s best universities, a strong economy with venture capital to 

fund promising ideas, employment laws that promote the free movement of labor, and respect for the rule of law make the U.S. economy 

a bastion of invention without equal. A pillar of that innovation platform is the patent regime, which is operating at a busier clip today 

than in the past.276 America goes further than perhaps any other jurisdiction to protect private ownership rights against appropriation —

indeed, so much so that rights in one’s property are arguably a defining hallmark of the U.S. legal tradition.

Those observations contextualize a crucial debate presently under 

way concerning the future of the U.S. patent system. Today, patents 

are under sustained attack for reasons that are variously justified and 

not. Certainly, the role that patents play in technology industries continues to evolve as the nature of the relevant technologies themselves 

change, and it is not surprising that policymakers may need to finetune an IP rights system in response. More alarming are broad attacks 

on the justifications for the patent system as a whole. Many technology users and some innovators are pouring cold water on the economic 

rationale for patents’ social purpose. Some economists even argue that 

the government should abolish the patent regime in its entirety. The 

result has been acerbic debate, much of it reflecting articles of faith 

about patents’ economic effects in promoting or suppressing the conception and marketing of technology. Predictably, stakeholders pro-

 

276. World Intellectual Property Organization, Global Patent Applications Rose to 2.9 

Million in 2015 on Strong Growth from China; Demand Also Increased for Other Intellectual Property Rights (Nov. 23, 2016), 

http://www.wipo.int/pressroom/en/articles/2016/article_0017.html; U.S. Patent and Trademark Office, U.S. Patent Statistics Chart; Calendar Years 1963-2015, (last visited Dec. 8, 

2016), https://www.uspto.gov/web/offices/ac/ido/oeip/taf/us_stat.htm.
No. 1] Patent Rights in a Climate of Skepticism 51

mote their respective constituencies’ private interests. As patent law 

generally applies one-size-fits-all rules across the full array of private 

industries, it is inevitable that provisions that benefit some economic 

actors will hinder others.

Patents are not always the principal spurring force for all inventions all the time. But there is ample evidence supporting the basic but 

powerful intuition underlying the patent system. Thus, some critics’

claim that contemporary patent policy lacks an evidentiary foundation 

does not hold up upon deeper examination. As is true in many areas of 

life, the real picture is variously messy, complex, qualified, and ambiguous. Yet the stakes are immense, meaning that we must grapple 

with the facts as we can best discern them in effecting policy. The 

responsible reaction to the various strengths and weaknesses of the 

contemporary patent system lies in incremental adjustment. Patents 

should remain a cornerstone of effective innovation policy.