More IPR has no direct relationship to innovation, and is counterproductive

Do Patents Always Encourage Innovation? One of the most visible arguments in favour of patents is that they are crucial for innovation. Patents are provided for a new invention. Often used interchangeably, there exists a fine line between invention and innovation. An increased number of patents may not automatically result in increased innovation. This could be one of the possible explanations of the “patent puzzle”: in spite of the enormous increase in the number of patents and in the strength of their legal protection, the US economy has seen neither a dramatic acceleration in the rate of technological progress nor a major increase in the levels of R&D expenditure (Boldrin and Levine 2013). Patents and other forms of intellectual property may sometimes impede innovation, restricting economic growth. Knowledge is the essential ingredient to stimulate any kind of R&D. This is also visible in Paul Romer’s endogenous growth theory, which has laid emphasis on R&D for economic growth. A patent fundamentally restricts the transfer of knowledge and technology by providing monopoly power to the patent holder. The monopolisation of knowledge means a very small pool of entities possesses the requisite knowledge for future research. New innovators not only face immense competition from the incumbent firms who already have the first mover advantage, but they may also be vulnerable to legal action from the existing patent holders. Additionally, to ensure exclusivity at least until the end of the patent protection period of the base patent, firms may file for a multitude of patent applications called “patent clusters” (on process, reformulation, etc.), which protect the product in addition to the base patent with the aim of creating several layers of defence. Using data from a large‐scale survey of patent applications, Torrisi et al (2016) discover that a substantial share of patents remained unused, and a substantial number of patent applications were filed to block other patents. On the other end are “patent trolls”; they are individuals or companies who buy up patents with the sole intention to threaten accused infringers with (often dubious) lawsuits. They have no intention to manufacture or market the patented invention but only to collect royalty or licensing fees (Nair 2014). Further, forward linkages may extend protection to other non-patented areas and limit innovation. For example, if a chemical compound is patented, all those drugs that could use that particular compound as an ingredient will be indirectly affected. This hinders future research and invention. Also, as discussed previously, patents lead to wasteful expenditure. Duplication of work and lack of coordination is common. Multiple entities may be engaged in single research simultaneously when it is most likely that only a single one of them would be granted the patent. When pharmaceutical companies engage in evergreening of drugs, they devote a significant part of their R&D expenditures to incrementally modified drugs. Also, firms may strategically use “patent thickets” that not only deter competition but also make subsequent innovation a highly challenging and costly business. Cumulative innovation from existing patents is contingent on patent disclosure. However, much of the legal scholarship on patent disclosure is critical of theory and disclosure is in fact inadequate (Sampat 2018). All these inefficient activities result in wasteful deployment of financial resources, which could have been used for new innovation. Ironically, the monopoly profits, which are supposed to incentive R&D in an ideal scenario, may often disincentivise it. Today’s innovators should not encroach upon future R&D. A balance is crucial for intergenerational equity. For optimal allocation to invention, it would be necessary for the government or some other agency not governed by profit-and-loss criteria to finance research and invention (Arrow 1962).