Patents are a necessary piece of the larger puzzle.

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. 6 Nevertheless, we would expect that introducing patents would increase the net incentive to invent a first-generation 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 and breadth to maximize economic welfare.8 9 The goal is to bestow the requisite expected return on inventors while minimizing the deadweight loss imposed by patent protection.90