The need to protect the inventions and creative works of individuals has been recognized for centuries. The first modern patent was granted in 1421 to Filippo Bruneslleschi by the Republic of Florence for a barge with hoisting gear. Hundreds of years later, the United States Constitution affirmed the importance of protecting "writings and discoveries" in order to "promote the progress of science and the useful arts."
Intellectual property serves as the foundation of innovation in our economy. Government-granted rights incentivize discovery and creativity by providing creators with an opportunity to profit from the value of their innovative work. In exchange, the creative work is made public so that others may build on and benefit from the work of the original creator. Laws protecting intellectual property also reduce the transaction costs between inventors and industry by providing information about the quality of the invention without jeopardizing the ownership of the idea.
For the entrepreneur, intellectual property in the form of patents, trademarks, and copyrights can be especially valuable. Patents, for example, have been shown to increase firm productivity and, more immediately, a firm's market value. Patent applications held by young firms also correlate with higher valuations by investors, provided those applications are not software-based.
But firms can also use patents and other forms of intellectual property in inefficient and anti-competitive ways. Firms may use patents as a strategic deterrent by building up "patent thickets," which make incremental or follow-on innovation by other firms a more challenging and costly process. Non-Practicing Entities (NPEs) also have been identified by many policymakers as a costly impediment to innovation and economic growth.
Sufficient intellectual property protection is key to promoting innovation. However, tweaks to intellectual property rights can shift incentives in ways that either encourage more or less innovation, depending on how strong or weak the existing intellectual property rights are.
The Dangers of Too-Weak Patents
The Dangers of Too-Strong Patents
Seeking a Goldilocks Approach
When intellectual property rights are too strong or too weak, they reduce the incentives for innovation. Consider the following to strike the right balance:
For More Information
Click on the links for access to the following Kauffman Foundation resources, or contact Jason Wiens at firstname.lastname@example.org:
How Entrepreneurs Access Capital and Get Funded
Demographic Trends Will Shape the Future of Entrepreneurship