Anup Malani and Jonathan Masur, "The True Cost of Patents"
Patents encourage innovation by granting inventors exclusive rights to sell their inventions. The resulting monopoly profits are a reward for innovation. It is commonly thought, however, that these monopoly profits price some consumers of inventions out of the market. This loss of consumption is an “efficiency” cost of patents. Thus, according to the conventional wisdom an optimal patent regime should balance the value of innovation to those who can purchase it against the efficiency cost of lost consumption to those who cannot purchase it. In our CBI talk, we question whether patents result in foregone consumption and reject the conventional tradeoff that drives optimal patent policy. We argue that there exist contractual mechanisms, such as health insurance and patent pools, that mitigate or stop consumers from being priced out of the market for innovations. Instead, the main concern with patents is that it transfers wealth from consumers to inventors. Anup Malani is Professor of Law and Aaron Director Research Scholar at the University of Chicago Law School and Jonathan Masur is Assistant Professor of Law at the University of Chicago Law School. This talk was recorded January 24, 2011 as part of the Chicago's Best Ideas lecture series.