Opinions and Editorials

Mar. 26, 2021

Cato Institute: Why Big Tech Likes Weak IP by Jonathan Barnett

Intellectual property (IP) rights in general and patents in particular are commonly characterized as, at best, a necessary “monopoly” granted to correct weak private incentives to invest in generating innovations that can be easily imitated by others. In recent history, this second‐​best characterization has dominated academic and policy commentary. It commonly supports widely asserted views that patent issuance and litigation have increased excessively, purportedly burdening technology markets with litigation and licensing costs that impede innovation and inflate prices for end‐​users. These views have translated into action: since approximately the mid‐​2000s, both the Supreme Court and Congress have erected significant obstacles to enforcing and applying for patents, and those barriers have increasingly threatened the economic viability of patent‐​based monetization strategies.

In my new book, Innovators, Firms, and Markets: The Organizational Logic of Intellectual Property, I draw on an intellectual toolbox consisting of economic theory, economic and legal history, and political economy to show that significant reductions in the strength of patent protection are likely to have unwelcome consequences as a matter of innovation and competition policy. Counterintuitively, weakening patents can raise entry barriers and shelter incumbents by disadvantaging firms that are rich in ideas but poor in the capital and expertise required to convert ideas into commercially viable products and services. The result is an innovation ecosystem in which research and development, and the commercialization of R&D, tend to take place within integrated financing, production, and distribution environments that can only be feasibly maintained by a small handful of large firms. By contrast, robust IP protections enable innovation ecosystems that support a variety of more‐ and less‐​integrated structures for funding and extracting value from R&D investments. That, in turn, multiplies the viable points of entry and promotes the formation of licensing and other secondary markets in intangible assets.