Patents undermine innovation snowballing by making follow-on innovations more costly

//DH

In addition to reducing the benefits of patents, innovation snowballing exacerbates the costs of patents relative to government-set tools that do not place intellectual property in private hands. Patents’ major disadvantage is that the monopoly rights granted to innovators under a patent system increase the cost of using the resulting intellectual property above its marginal cost, thereby reducing the technology’s use among two important groups: producers who use the innovation to make a product (e.g., electricity) and entrepreneurs who use the innovation to develop future innovations.147 Thus patents—especially those on foundational concepts148—can impede innovations from being added to the innovation stock (i.e., make the “shoulders of giants” smaller than they could be).149 For example, companies with patents can, in theory, entirely prevent others from using its technology for the duration of the patent; at a minimum, they will likely charge more than the zero marginal cost of the use of the idea. Likewise, patents can create an anti-commons problem: if a new potential innovation requires as inputs a variety of past innovations, each of which is patented by a different company, then the costs of acquiring all those licenses may be prohibitively high.150 Innovation snowballing makes the monopoly pricing and transaction costs under the patent system all the more perverse. Path dependency follows from innovators “standing on the shoulders of giants,” and patents make it even harder to stand on those shoulders, hindering innovation snowballing.