Tech Dirt has a post on Nathan Myhrvold recent article in the Harvard Business Review (http://hbr.org/2010/03/the-big-idea-funding-eureka/ar/pr), entitled Patent Attorney Highlights How Intellectual Ventures Syphons (Siphons) Money Away From Innovation.  The level of misunderstanding in this article is incredible.  First patents are legal title to inventions.  Stocks are legal title to a part of a company.  It is not surprising that patents have some of the characteristics of stocks.  If a secondary market is created for patents, this means that inventors who are not successful in commercializing their inventions will be able to obtain some return for their efforts.  Without a secondary market for stocks any purchase of a company’s shares would be locked up forever.  This would discourage investment in companies.  Similarly, a lack of a secondary market in patents reduces the investment in technology.

The evidence that patents encourage innovation is overwhelming if you open your eyes.  Those countries with the strongest patent laws have the fastest rates of innovation and diffusion of innovation.  Those countries with weak or non-existent patent laws have the least innovation and technology diffusion.  Before patent laws became widespread in the western world, the rate of innovation was slow enough that the per capita income of the west had not changed in centuries.  Note that many of the other conditions of a free market, such as low taxes, property rights, etc existed for centuries before per capita income started to increase in Europe.  If you believe this is just correlation, the burden is on you to prove it since all the evidence is against you.

Clearly, our patent system has problems.  The average time it takes to obtain a patent is over three years.  If it took three years to obtain title to your house or shares in a company you would assume you were living in a third world country.  Patents need the equivalent of title insurance for real property.  Before title insurance you had to pay an attorney a lot of money to do a title search to make sure you were going to obtain clear title to your house or land. In addition, you had to pay a surveyor to determine the boundaries of your land.  The boundaries were not obvious at all and our ancestors were very litigious over the boundaries of their property.

Despite these problems, the US has strong economic growth when we have strong patent laws and systems and weak economic growth when we have weak patent laws.  Antitrust laws were used to weaken our patent laws in the 1930s and 1970s and we had extended economic downturns.  Our patent laws were strengthen in the 1980s and strong in the 1990s and we had strong economic growth.  The only way to increase real per capita income is by increasing our level of technology.  Patents clearly encourage advances in technology, which results in real economic growth.