Patents waste research spending and increase incentives for secrecy – they’re net worse for innovation

Patent supported research also creates incentives for wasteful research in the form of duplicative drugs. There can be large rents associated with developing a second, third, or fourth drug for a specific condition when a breakthrough drug is earning large patent rents. As noted, these drugs will typically have some value, but in most cases research funding would be better spent on seeking cures for conditions where effective treatments do not currently exist.

Patent supported research also creates incentives for secrecy in the research process. A company in search of patents will disclose only the minimum information necessary to secure a patent and to gain approval for its drugs. It has no incentive to share information with potential competitors. In addition, patent support also has the effect of pushing research in the direction of patentable products. Companies have no incentive to pursue evidence suggesting that a particular condition could be best treated with diet or exercise or that environmental factors may be a cause of bad health. While they may make this information public for others to pursue, they have no direct incentive to do so.

Similar issues with patent supported research arise in other sectors as well, but they generally will not be as serious as with prescription drugs, since the patent rents are a much smaller share of the price of the final product. Nonetheless, the pursuit of patent rents can still lead to substantial waste and be an impediment to innovation.

Patents can often be used as a form of harassment of competitors, even if there may be little substance to claims of infringement. The lawsuits between Samsung and Apple over each other’s new smartphones were a major aspect of their competition for several years. Patent trolls routinely file suits against successful companies, with the hope of getting far enough to get a substantial settlement even if the underlying claim is dubious. To avoid these sorts of legal issues there is evidence that smaller firms and start-ups divert their research to areas without many competitors since they lack the legal resources to fight lengthy patent battles in court (Lerner, 1995).

In addition, patents can increase the cost of research. Research tools, such as software programs and various biological entities, are often subject to patent protection, which substantially raises their cost. As a result, patent protection can impede research by making the process more expensive.

Finally, the system itself is expensive. It is costly to maintain a cadre of qualified patent examiners who have the time and expertise to assess the merits of a patent application and ensure that the new patent is not infringing on prior patents. But these public expenses are but a fraction of the total expenses, e.g. associated with the cadre of lawyers engaged in filing patents, suing for patent infringement, and defending patents. The legal disputes between patent holders and alleged infringers can often be quite complicated involving complex issues requiring expertise in narrow areas. This was the rationale for the United States setting up a special appellate court to deal with patent disputes. Some claim that in the United States more is spent on the legal system associated with the patent system than on the underlying research itself.