The case for patents rests crucially on three conditions: that innovation is undersupplied in the absence of patents; that patents promote increased innovation; and that the welfare benefits of any additional innovation outweigh the welfare costs associated with the temporary monopoly that patents generate. While it is probably true that innovation is undersupplied, the empirical evidence is mixed on whether patents foster innovation. This may be due to patents stifling cumulative innovation because of holdup and ex ante uncertainty over patent rights. This policy brief recommends that to reduce the potential for holdup, uncertainty around patent rights should be reduced. Patents should be easily searchable and more easily understood by non-legal experts. In addition, patents should be narrower and more clearly demarcated. To the extent that the welfare costs of patents appear to outweigh their benefits, the requirements for obtaining a patent should be tightened. Further, patents should be made less broad and, concomitant with the reduction in the length of the product cycle, the length of patents should also be reduced.
