The Wikipedia article on the Robertson screwdriver gives an excellent example of how clumsy use of a patent hurts innovation. The Robertson screw (square hole, slightly tapered) is the best general-purpose screw drive ever designed, and accounts for about 85% of all screws sold in Canada — if you’ve ever worked with a Robertson screw, you immediately feel the urge to kick anyone who tries to make you use anything else, especially the Phillips screw with its easy-to-strip head.
Henry Ford realized that Robertson screws would save him considerable time and expense on the assembly line, but unfortunately, after a bad experience in the U.K., P.L. Robertson was so fierce about protecting his intellectual property rights that he wouldn’t sell Ford a license to make them. Ford was too smart to bet his company on a single monopoly supplier — even if the product was vastly superior to its competitors — and to this day, more than 40 years after the last patent expired in 1964, Robertson screws are barely used at all outside of Canada. By being too inflexible about his IP, Robertson ended with up only one tiny market (Canada) and missed his chance to change to world.