Joe Nocera had an interesting column, based on a book by Lawrence Goldstone, that discussed how disputes over the Wright brothers' patents held up the development of the airplane. Unfortunately Nocera concludes the piece with a quote from Goldstone:
"That is, of course, the irony of the patent system. Without patent protection, a competitor can simply replicate an invention and undercut the inventor’s price — which necessarily includes all the time and expense of research and development — so the incentive to experiment and create is severely inhibited. But if innovators such as Glenn Curtiss [the Wright brothers' main competitor] cannot build on the progress of others without paying exorbitantly for the privilege, the incentive to continue to experiment and create is similarly inhibited."
In fact, patents are not the only mechanism for supporting innovation. The federal government spends $30 billion a year financing bio-medical research through the National Institutes of Health. It also funds research in other areas. Most of this research is directed towards more basic science, but it nonetheless has led to many important innovations. If funding were targeted for developing marketable products (possibly through private contractors) there is no reason for believing it would not be successful.
Given the enormous inefficiencies associated with patent financed research, we should be discussing alternatives. It is unfortunate that Nocera's article implies there are no alternatives to patent financed research.
Note: Thanks to Peter for calling this column to my attention. I also see from comments below that Lawrence Goldstone has explicitly argued that we need to pursue alternatives mechanisms to patents for financing innovation. This is encouraging.