The Patent Paradox

Patents are extremely prevalent entities in today’s markets, resulting in 346,152 patents being issued in 2023, with the US Patent and Trademark office estimating that $3.7billion is spent on patent fees alone. This number does not include the research and development, grants or other means of funding, or lobbying for the product incurred by the patent-seeker. Patents are fundamentally rent-seeking. The patent process involves a federal government agency vetting a product and granting an inventor exclusive rights to their unique product for a set period of time, typically around 20 years. While these inventions are still governed by anti-trust laws, these patented products can and often do create quasi-monopolies, pushing other companies out of a market due to greater efficiency and/or lower costs of the product. However, because of patents’ temporary nature, they do not guarantee monopolies but can create enough of a buffer to establish oneself as the giant in an industry. 

Patents are crucial to incentivize innovation and fuel capitalism in the US, pushing inventors to constantly improve their products for financial gain and increase in national GDP. Key technology patents alone are the cause of roughly 2.85 trillion USD in GDP per year in the US. These patents however come at a societal deadweight loss. Approximately 90% of patents are rejected at least once, incurring more expenses like forgoing the endeavor or investing more resources to secure the legal rights of the product. In turn, a series of government agencies has to be funded to grant patents, monitor them, and enforce them, and consumers have to pay more taxes and more for the products or services in stores and online.