The patent system has terminally wrecked American economic growth
Ouellette and Williams 20 , Lisa Larrimore Ouellette is the Deane F. Johnson Professor of Law at Stanford Law School, as well as a Senior Fellow at the Stanford Institute for Economic Policy Research. Heidi Williams is the Charles R. Schwab Professor of Economics at Stanford University; Professor, by courtesy, of Law at Stanford Law School; and a Senior Fellow at the Stanford Institute for Economic Policy Research (SIEPR). She is the Editor of the Journal of Economic Perspectives, and is a Research Associate at the National Bureau of Economic Research (NBER) where she is co-director of the Health Care program as well as co-director of the Innovation Policy working group. (Lisa Larrimore and Heidi, June 2020, “Reforming the Patent System.” The Hamilton Project, https://law.stanford.edu/wp-content/uploads/2020/06/Ouellette_Williams_LO_6.16_FINAL.pdf)
U.S. economic growth has slowed since 2000, and projections from the U.S. Congressional Budget Office (CBO 2018) and others suggest that the U.S. growth rate is unlikely to substantially accelerate in the coming years. As argued by Shackleton (2018; summarizing CBO forecasts) and others, a key component of this recent slowdown in economic growth is a decline in what economists call total factor productivity growth, which refers to the portion of economic growth that is not explained by the traditional inputs of labor and capital. This recent observed decline in total factor productivity growth is of concern, in part because it has coincided with slow growth in real wages and rising wage inequality. The precise causes of this productivity slowdown are unclear. However, economists are generally in agreement that, for countries that are already at the technological frontier such as the United States, the only way to secure long-run productivity growth is through innovation (see Bloom, Van Reenen, and Williams 2019 for one recent discussion). A key policy challenge facing the United States is hence how to accelerate technological innovation. Government policies have long sought to spur innovation. In a competitive market, inventors frequently capture only a small share of the social value of their inventions. If firms invest in research only up to the point that their private benefits outweigh the costs—not accounting for the broader social benefits—then private research investments will likely be too low from a social perspective. This concern about underinvestment has motivated attention on the design of public policies that are aimed at better aligning inventors’ private benefits with the social value of their inventions. While a variety of policy levers are relevant, including R&D tax credits and publicly funded research subsidies, both historically and globally one of the most widely used policy levers for trying to improve this alignment is the patent system (see Hemel and Ouellette 2013 for one discussion). Unfortunately, as discussed further below, innovation scholars have been unable to credibly demonstrate that stronger patent rights do, in fact, lead to additional research investments (Williams 2017). In the absence of such evidence, it is not clear that the benefits of the patent system are large enough to outweigh patents’ costs, which include higher prices on patented goods for consumers and subsequent innovators (i.e., those whose inventions build on earlier inventions) during the life of the patent, administrative costs within the patent system, and both search and transaction costs for private parties seeking to operate in technology markets. Whether these costs are outweighed by the value of increased innovation—and thus higher productivity and economic growth—is, in our view, the fundamental question of patent policy. Concern about some of these costs, particularly costs associated with frivolous patent litigation, has driven substantial U.S. patent reform efforts over the past two decades, both in Congress and at the U.S. Supreme Court. These reforms have generally weakened U.S. patent protection, leading to a countervailing concern from certain stakeholders that the patent system now provides insufficient incentives for innovation, at least in some markets where patent protection has been scaled back. Given the empirical uncertainty about the effect of the patent system on social welfare, however, our view is that it is difficult or even impossible to rigorously predict the effects of policy reforms aimed at altering the overall strength of patent protection. Instead, in this paper we propose three tailored reforms that would improve the patent system without requiring a stance on the overall contribution of patents to innovation and productivity. That is, rather than proposing more or less patent protection, we suggest reforms aimed at better-designed patent protection. We order these reforms based on our confidence in the supporting evidence, together with the clarity of our proposed reform plan.