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The power of patents

By Peter Nielsen
web posted October 30, 2023

I recently caught an interesting Youtube video titled "What Makes America's Patent System Great". This video is an interview between a woman named Michelle Malkin and a law professor named Adam Mossoff. While these two might not necessarily be economists they have some interesting ideas and perspectives when it comes to patents. Massof being a law professor is able to discuss in greater depth the legal side of patents which are the main focus of this video. What is a patent though, and why does it matter? Patents serve as a protection to the right of intellectual property. Essentially, when someone has an idea for some new invention they can file a patent and then no one else is allowed to make or copy it. On the surface, this sounds like a great idea, and it is! However, as always, it is not as simple as just that. In this video, the two discuss one key issue with patents in recent years. In 2011, President Barack Obama signed a law called the "America Invents Act". This law switched America's policies on patents from a "first to invent" system to a "first to file" system. What does this mean though? First, we will discuss a little bit about the importance of patents.

It is a rather economically conservative idea that the main drive for innovation is pursuit of self-interest and profit. People are motivated to spark innovation to produce whatever they want to see in society and turn a profit on. Now, regardless of how you feel about the following statements, patents protect this idea, ensuring that you and only you will be able to profit from your new invention and or idea. Without patents this assurance wouldn't be there. People might be less motivated to devote as much time and effort into some new invention. They might spend all their money and time creating something that would just be stolen by a bigger company who could produce it at a cheaper price and undercut them. This makes the investment into creative innovation way more risky for the inventors. In this scenario, people who might regularly file a patent and work on some new innovative project might not work on a new project at all as they receive no assurance of sole rights and profit from it. This would be disastrous. Technological innovation is the one thing that separates us from the Middle Ages–truly. Without technological innovation the only factors contributing to long-term economic growth would be increases in human and physical capital. Both which experience the law of diminishing returns. Our economy would eventually stop growing and that would be disastrous. The continued drive for innovation and new technology keeps this tapering off from occurring as new technological innovation is not subject to the law of diminishing returns. So, technological innovation keeps the economy growing, technological innovation is often in part due to individuals' personal interests, and patents protect these interests. Now, where does this 2011 law signed by President Obama come in? 

Since the founding until this law was passed America functioned under a "first to invent" system of patenting. This meant that the first person to actually invent something could file a legal patent for it. So, to file a patent one would actually have to invent something tangible then file it. Now, in 2011, as mentioned, President Obama changed this. This new law switched America over to a "first to file" system. The reasoning behind this? Well, this was the same model the majority of the rest of the world used (mainly Europe). The idea was that it would be good for more countries to have similar patent systems. Now, Mossoff argues that this makes little sense. If homogeneity in patent laws was desired It would be better to encourage other countries to raise their bars to what America was doing rather than lowering the American standard to what the rest of the world was doing. Hang on though, why would this be considered a lower standard? Simple, under a "first to file" system, anyone at any time can file a patent on an idea. Some random company who isn't currently making something or doesn't even have a plan to make something could file a patent for an idea. Then, let's see a few years down the line some inventor goes ahead and actually makes this idea. What happens then? The company who did not do a thing sues them for patent infringement. This in a way kills innovation. If anyone can file a patent on anything, what is stopping major companies from filing as many patents as they can and simply suing people as they invent things? Said inventors are then less motivated to actually invent new innovative technologies. Now only do they not have the same prior assurance of sole monetary gain from it, rather they now have assurance of being sued! This could be disastrous for the long-term state of the economy as technological innovation is stifled. 

The video's title, "What Makes America's Patent System Great", is incredibly interesting given a lot of this video is actually a criticism of the American patent system. It is important to note though that Malkin and Mosoff seem to be talking about the old patent system and its greatness. They discuss in the beginning how unique and inspirational America's patent system was and how it enabled incredible technological innovation boosting America to the biggest economy in the world. They are arguing however that some current issues with the patent system are hindering this greatness. (They did discuss other things, but I chose to focus on the changes from this law rather than everything for this essay.) Personally, I have to agree with Mosoff and Malkin. I admittedly did not know much about Patents before this video. However, from our studies in Macroeconomics I understand the importance of technological innovation for economic growth. Mossoff was able to provide a unique and incredibly valuable insight as a lawyer into the legal side of patents which I had never really known anything about. Competition is one of the most important things in any dynamic economy, but protections are also incredibly important. Patents serve as a form of insurance and protection for inventors without really getting in the way of this essential competition which is incredibly valuable. I would agree that more modern restrictions on the patent system such as the "America Invents Act" are overall a downgrade for the economy. I understand the motivation for world unity and homogeneity in patent laws for international legal reasons, but I agree with Mossoff that it would be better to try and inspire and lift up other nations rather than bringing ourselves down. I had very little interest in Patents before but now I am a lot more curious about them and the laws surrounding them. I will certainly keep my eye out for more information about patents and laws around them in the future. ESR

Peter Nielsen is currently a Junior in highschool and is taking AP Macroeconomics. This is his first contribution to Enter Stage Right. (c) 2023 Peter Nielsen


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