individuals have many incentives to invent and create, some innovations are less likely to be forthcoming in the absence of a grant of exclusive rights providing an opportunity to recoup initial investments while excluding imitators. As a quid pro quo for a period of exclusivity, patents, in addition, are assumed to promote innovation by disclosing know-how that might otherwise remain secret.1


High levels of innovation in the United States would seem to be evidence that the intellectual property system is working well and does not require fundamental changes. But there are at least six reasons why intellectual property policy has drawn the National Academies’ attention and deserves continued scrutiny.

  1. The patent system, like other important innovation policy tools, merits periodic examination to help ensure the vitality of the national innovation system.

  2. Significant changes in the patent system during the 1980s and 1990s, generally in the direction of extending and strengthening patenting, should be evaluated.

  3. The use of the patent system for inventions related to research tools and discoveries has prompted a debate about whether such patents provide incentives to innovate or may in some circumstances impede research progress.

  4. Patents are being more actively acquired and vigorously enforced.

  5. The roles and benefits of patents vary greatly from one technology or industry to another, but there has been very little systematic investigation of the differences.

  6. In the meantime the financial and opportunity costs of acquiring, defending, and challenging patents are increasing.

Preserve America’s Capacity to Innovate

The American economy’s innovation capacity, although resilient, is not foreordained. To sustain it, all of the chief public policy instruments affecting its vitality deserve periodic examination by analysts as well as stakeholders.


Other forms of intellectual property rights—trademarks and trade secrets—do not confer exclusive rights in protected inventions; rather, they are branches of unfair competition law. The federal trademark laws, protecting registered brand names and corporate insignia, operate largely to protect consumers against confusion as to the source of goods and services. Trade secret laws, primarily at the state level, protect against industrial espionage and misuse of confidential business information (Pooley, 1997-1999). Contracts frequently are used by businesses to protect information, and to the extent that they act to define and reinforce the trade secret right, are widely enforced. Other agreements, such as noncompetition covenants and prohibitions against reverse engineering, although often sought in the name of trade secret protection, are more controversial because of their possible effect on fair competition. The Economic Espionage Act of 1996 expanded the effective protection of trade secrets by providing federal criminal penalties for behavior that was traditionally addressed for the most part by state civil law.

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