Patents are important in the sense that they promote innovation. This innovation is shared to our society because the originator has his invention protected. Let’s examine two different incentive structures.
Structure #1: No Protections or rights to the originator of inventions
Brilliant man has idea for an invention and invents the lightning rod which protected buildings and ships from lightning damage. A savvy cherry picker steals brilliant man’s invention and makes fortune. (Ben Franklin-As brilliant man)
Noticing a trend?
Now, brilliant man decides he is no longer going to put his time, effort, and resources into making inventions because he cannot profit from them. (No matter what anyone tells you, everyone is guided by Adam Smith’s “Invisible Hand”). Therefore, the utility (economist’s way of measuring satisfaction/happiness) of society as a whole plummets.
This structure means that all the brilliant men, the true innovators, would no longer be encouraged to contribute their inventions to society because they would waste all their time, effort and resources for someone to steal their piece of the pie. Would there ever be an innovator that would do it because of the strict intrinsic value that they derive from contributing to society? Maybe, but I wouldn’t hold my breath for long.
Structure #2: Protections and rights are given to the originator of inventions
Do I really need to go into detail? You get the point by now. Brilliant people are now compensated for their inventions to society. Therefore, brilliant people of the future see this trend and realize that it can be profitable to share innovations with society. Moreover, our lives are generally improved by innovative technology. As a student of economics, I can tell you that incentives are important to innovation. It is amazing how different the scenarios play out when you change something as simple as the incentive structure.
Patent protection seems simple enough, but don’t mistake simplicity for unimportance. Patent protection is directly related to growth, and growth is the foundation of our economy. Innovation combined with strategic patent protection is one remedy for economic stagnation.