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Untangling the Relationship Between Patents and Innovation

Patents are often used to measure the success of an organization’s research and development efforts. It’s easy to assume that a more innovative R&D team would hold more patents. However, we must ask ourselves if this is an accurate assumption. As noted in The R&D-patent relationship: An industry perspective, “Patenting is only one way to appropriate the benefits from an invention and patents are used for other strategic purposes, too.”

Are patents the best way to examine the R&D team’s past success and determine future investment in innovation? Data analysis on this topic—spanning many decades, industries, and countries—fails to answer this question conclusively. Instead, it invites a lively discussion on the advantages and disadvantages of the patent system, and whether or not it spurs innovation in the way it was designed to. 

Incentivizing Innovation with Patents

Patents are designed to incentivize innovation. When an inventor is granted a patent, their invention is both protected and disclosed. The protection of a strong patent gives the patent holder an economic advantage. It can be argued that without this protection, businesses have no incentive to innovate and may be unable to convince investors otherwise. With the protection of a patent, innovations can also be publicly disclosed, which leads to additional “downstream development.” 

Examining the Limitations of Patents

Researchers have drawn a variety of conclusions regarding the relationship between innovation and patents. Not all of them offer a direct line between patents and innovation. Perhaps the relationship is more complicated than that. 

The patent system was not designed for high-tech innovations, such as software. In 2018, the USPTO granted 144,413 utility patents, well over triple the number of utility patents granted in 1988, 30 years earlier. This dramatic increase in patents does not necessarily mirror an increase in patent-worthy innovations. Rather, it highlights the limits of the current system. Today’s businesses utilize patents as part of a larger intellectual property strategy. Patents are not only for protecting innovations a business plans to bring to market, but also for licensing, mergers and acquisitions, competitive advantage, and more. 

In some industries, competition is more motivating than the protection of a patent. Relying on healthy competition to move innovation forward allows for new entrants into the market, whereas patent protection and licensing costs can keep startups and small businesses from making an impact. The expense of securing a patent, as well as defending it, is not only cost-prohibitive for many entities—it also raises the cost of end goods

There is likely no perfect way to define the relationship between patents and the innovations they were designed to protect. In the end, it is likely up to individual companies and industries to determine how to measure R&D success.