Innovation has significant positive externalities- spillover social benefits and spinoff innovations.

Commentators have long recognized that innovation creates enormous positive externalities.44 While innovators benefit substantially from their own creations, significant benefit slips, uncompensated, to others.45 Innovation spillovers benefit consumers who receive unanticipated consumer surplus, competitors and potential competitors who obtain valuable information, and society at large.46 Because spillovers from innovation are well recognized in the economics and IP literature, this Section's discussion of positive externalities from innovation will be relatively brief.

Examples of innovation spillovers are legion. Biopharmaceutical companies receive compensation for the drugs they produce, but such drugs generate enormous uncompensated benefits by reducing healthcare costs and increasing social welfare for all. Similarly, Microsoft Office enhances worker productivity and generates significant social value that Microsoft does not capture as private gains. Communication technologies produce enormous spillovers by facilitating conversations, connections, and transactions that the developers of such technologies could never imagine, let alone factor into their development efforts. Network technologies enable positive externalities wherein the value of such networks increases as more users join them.4 Broadly, one of the most important positive externalities of technological innovation is increased economic growth.48

Technologies produce positive externalities not only in the static sense of enhancing present social welfare, but also in the dynamic sense of promoting subsequent innovation.49 Innovators stand on the shoulders of giants, building upon previous innovations.so Information spillovers drive further innovation, for example when scientists and engineers share information in academic publications and conferences or move between various organizations. Technological investments in one field, such as space exploration, often lead to unexpected applications in other fields, such as solar panels and heart monitors. 51

A wide empirical literature has attempted to quantify the positive externalities of investments in research and development.2 One classic study found that the median private rate of return for various industrial innovations was 25%, but the median social rate of return for these innovations was 56%.53 These findings accord with a more recent study reporting that the private rate of return to R&D was 21% while the social rate of return was 55%.54 These empirical findings suggest that the social returns to R&D far outstrip the private returns, indicating the presence of significant positive externalities. Furthermore, they suggest that economic actors may underinvest in R&D relative to the socially optimal level.55