The functions of patents in our societies: innovation, markets, and new firms

This article provides a review of the role and functions of patents in society using data and evidence from the economic and management literature. While patents provide private protection to appropriate the returns from inventions, they also encourage their diffusion – in particular, they provide signals about the value of new firms, disclose information about the invention, and encourage the exchange of inventions and ideas in markets for technology. In order to better understand this trade-off, Patent Agencies and stakeholders should invest to a greater extent in data collections or in creating the conditions for research designs and experiments that nail down causal effects and mechanisms. Most available data are not created with these identification strategies in mind, which limits the questions that scholars can ask. Systematic studies that identify different effects of patents can provide the basis for rigorous evidence-based management and policy about patents.