We all know the patent system is broken.
But most people believe that the biggest problem with it is abusive litigants who extort so-called “license fees” from small businesses unable to pay the cost of standing up to them in court. Their activities, of course, have no more in common with real patent licensing than a mob protection racket has with the sale of genuine “liability insurance.”
The unspoken reality is that the U.S. patent system faces an even bigger problem: a market so constricted by high transaction costs and legal risks that it excludes the vast majority of small and mid-sized businesses and prevents literally 95 percent of all patented discoveries from ever being put to use to create new products and services, new jobs, and new economic growth.
Even the most dramatic estimates of the social cost of abusive patent litigation range in the low tens of billions of dollars. But according to a new study by the distinguished economists Robert Litan of the Brookings Institution and Hal Singer of the Progressive Policy Institute—a study I helped to fund—liberating patent licensing from its litigation-focused costs and risks would enable tens of thousands of currently-dormant inventions to be commercialized and conservatively add up to $200 billion a year in increased output to the U.S. economy. That’s at least ten times bigger than the litigation problem, and directly impacts job creation.