Patents fuel creative destruction, enabling innovation---their studies ignore macro-economic effects.

From biopharmaceuticals to information technology, patents play a powerful role in the birth, death, and renewal of innovative industries. This Article explores patent law's underappreciated contributions to evolutionary economic change. It argues that patents contribute to churn- a continual process in which new innovations and firms challenge incumbents, which must constantly innovate or face displacement. Ultimately, the insurgents become the incumbents, and the cycle starts anew. These competitive pressures force firms to "innovate or die," thus providing maximal incentives to innovate.

In considering patent law's contribution to churn, this Article moves beyond patent scholarship's traditional micro-level focus on individual invention and explores the impact of patents on macro-level economic and industrial change. In so doing, it offers a novel interpretative gloss on many seemingly disparate elements of the patent system that contribute, both directly and indirectly, to advancing churn. The role of patents in promoting industrial churn is particularly important today given widespread policy concern over industry consolidation and enormous market power wielded by entrenched incumbents. 10 While such issues are ordinarily the province of antitrust law, patents contribute significantly to industrial evolution in which innovative insurgents continually challenge and ultimately displace incumbents, thereby rejuvenating industries.

Two processes form the heart of churn, and patents contribute to both of them. First, at the "front end," robust entry of new innovations and entities generates a steady stream of competitors to challenge incumbents."1 As this Article will argue, patents stimulate such entry, though the precise role of patents in promoting entry varies by industry. Second, at the "back end," incumbents face harsh penalties-including possible displacement-if they fail to keep innovating. Patent law also promotes ongoing incentives to innovate through the expiration of exclusive rights and by disciplining patentees that assert patents in overreaching and strategic ways. By both enabling the appropriation of economic value and taking it away, patents promote the twin processes that drive churn.

In advancing the theory of churn, this Article reinterprets patents' role in evolutionary economic change. Students of economic history will recognize distinct parallels between the concept of churn and economist Joseph Schumpeter's influential theory of "creative destruction."'2 According to Schumpeter, constant competition creates waves of creative destruction in which new firms displace existing incumbents and reshape industries. Schumpeter's theory embodies some elements of churn, as it helps explain

"the sudden displacement of the old by the new." 3 As discussed further below, however, churn deviates from several central principles of creative destruction. For example, while large firms are the primary innovators in Schumpeter's most influential articulation of creative destruction, small entities drive evolutionary change in the theory of chum.14 Furthermore, while Schumpeter described patents as a kind of "restrictive practice[]" that curbs competition,' 5 the theory of churn recognizes a much more dynamic role for patents in promoting competition as well.16

This Article argues that patent law promotes both the birth of innovative firms and the demise of ones that grow complacent. At a fundamental level, the mere availability of an exclusive, time-limited right to technology promotes a baseline level of churn. Exclusive rights on new technologies aid firm entry in many industries, and the expiration of patents provides an incentive for patentees to continually innovate or risk displacement.