Step 1) Build a patent system that allows for innovation monopolies and fragmented ownership of new technologies.

Step 2) Watch it eat itself to death.

Ok, maybe it’s not quite that simple. Here’s a bit more context.

Earlier this week I had the opportunity to exchange tweets with @nakisnakis on some of the challenges surrounding the patent system in the U.S.

The U.S. patent system was developed with the intent of promoting innovation in order to serve the social good and spur economic growth. As patent theory goes, by providing inventors with a temporary monopoly on their technology or method you provide greater incentive for innovation. While U.S. patent law has in some ways served these ends, over the years it also has proven significantly flawed.

Excessive Patenting

For example, @nakisnakis‘s original tweet reminded me of an outstanding set of books by Henry Chesbrough – “Open Innovation” and “Open Business Models” – that confront the problem of excessive patenting within U.S. corporations.  Chesbrough’s claim was that corporate R&D labs have come to patent any and every new development, just in case maybe, perhaps, someday, they might just use that patent to bring a new product to market.

In reality, the vast majority of these patents go unused because the products they support ultimately don’t fit the business strategy or business model of the company that originally filed the patent. Since nobody else can use the patented technology, however, the innovation is never allowed to benefit society.

In “Open Business Models” Chesbrough argues for more efficient and transparent secondary markets in intellectual property that would allow for these idle patents to be licensed to companies who will actually use them.  Not a bad idea.

Independent Inventor Defense

A great blog post @nakisnakis shared with me during our twitter conversation talks through yet another problem with the patent system – the lack of an “independent inventor defense.”  With the copyright system, the post states, people who develop similar ideas or works independent of one another have no claim to each other’s “property.” Not so with patents.  There, the first to win the patent gains exclusive rights to the idea, even if it has been developed independently by others.

The Tragedy of the Anti-Commons

Finally, in a nice stroke of coincidence, I happened onto a recent EconTalk with Michael Heller, law professor at Columbia, discussing cases of excessive and ineffective use of private property in the U.S.  His book, “The Gridlock Economy,” outlines, among other things, how the existing patent system fragments ownership of ideas and thus makes it overwhelmingly difficult to generate breakthrough innovations with the ability to improve health, transform industry, and save lives. This is because many major breakthroughs involve the innovative aggregation of more narrowly applicable existing technologies that are already patented.  Identifying and gaining access to all of these patents would be so ridiculously costly that these types of innovations are left unrealized.

All in all, lots of reasons to not be very happy with the patent system (if you want to help change it, check out the bill proposed by Senators Leahy and Hatch).

What’s more disturbing is that this same phenomenon is playing out in a whole other and even more crucial part of our economy, with potentially very similar impacts. More on that to come.