Well, they’re often economical for the patent holder in the short-run. But over time, a legal regime that discourages information-sharing simply closes off advances in technology. Defenders of government-granted monopolies (i.e. patents) often rely make broad claims that allegedly show that inventions would not be made were it not for patents. True history, on the other hand, generally shows the exact opposite as in the case of William Gilmour and the power loom. James Bessen writes:
Although Gilmour and Lyman directly helped competing mechanics and textile mills, they weren’t fools. For two decades, machine shops and textile mills made high profits. Machine shops could charge high prices for textile equipment because few mechanics knew how to build them; textile mills could make high profits because it was much cheaper to use the new loom. Imitation didn’t substantially reduce profits because there was a shortage of mechanics who could build the machines, of entrepreneurs who could run the new type of enterprises, and of skilled workers who could make the new contraptions productive.
At the same time, there were significant benefits to sharing knowledge. Gilmour might have the best loom design, but many other mechanics had better designs for some of the other devices used to produce cloth. In addition, mechanics continually made improvements. By exchanging ideas for two decades, the textile equipment mechanics rapidly improved the technology, doubling the cloth a weaver could produce in an hour compared to the first power looms.
Most of the important weaving inventions during this time were not patented. Because imitation did not destroy profits, it simply didn’t pay to use patents. (This wasn’t limited to the loom: Only 15 percent of the U.S. inventions shown at the 1851 World’s Fair in London were patented.)
But after the 1830s, almost all significant weaving inventions were patented. The textile mills still exchanged information about best practices, but critical knowledge was more often protected by secrecy or patents. Conditions had changed. There no longer were shortages of skilled mechanics, managers, and workers. Market competition was fierce, and profit margins shrank for the textile mills and machine shops.
The patent dogmatist will read this and conclude “See? Times have changed so now we need patents.” But such a claim relies on consequentialist and utilitarian logic, and if we use that standard, we quickly see that such claims fail.
The economy, of course, involves much more than the one industry of power looms. An economy is composed of countless industries and exchanges. We already see above one historical instance in which the non-existence of patents actually helped the profitability of the inventors. So, if one is going to make the claim that patents make profitability possible, then the power loom must be an exceptional case that will never be repeated. If, however, we accept the far more probable case that a lack of patents helps many inventors at many different times be more profitable, then we have to accept that at least some of the time, patents actually reduce profitability. So, one has to admit that even if government monopolies were morally permissible, it is true that patents help inventors be profitable in some cases, but maybe not in other cases. Thus, the assertion that patents are necessary for economic growth is obviously untrue.
Some will insist however, that at this point we quickly go down the rabbit hole that involves endless debates about whether monopolies should be granted in this industry but not in that industry, and so on.
It would seem that such debates are an enormous waste of time, and that we should simply recognize that governments are in no position to determine whether government monopolies known as patents should be granted or not. The alternative leads quickly to government micromanagement of the economy.