1. Skip to navigation
  2. Skip to content
  3. Skip to sidebar
Source link: http://archive.mises.org/10217/yet-another-study-finds-patents-do-not-encourage-innovation/

Yet Another Study Finds Patents Do Not Encourage Innovation

July 2, 2009 by

Study Finds Patent Systems May Not Be an Effective Incentive to Encourage Invention of New Technologies reports:

A new study published in The Columbia Science and Technology Law Review challenges the traditional view that patents foster innovation, suggesting instead that patents may harm new technology, economic activity, and societal wealth. These results may have important policy implications because many countries count on patent systems to spur new technology and promote economic growth.

The study is: Patents and the Regress of Useful Arts, by Dr. Andrew W. Torrance & Dr. Bill Tomlinson, Colum. Sci. & Tech. L. Rev. 10 (2009): 130 (Published May 15, 2009).

As those familiar with my libertarian and IP views know, I’m not a utilitarian (see my There’s No Such Thing As A Free Patent; Against Intellectual Property); but almost all IP proponents are, and claim that IP is “worth it” because it generates additional innovation the value of which is implicitly presumed to be obviously much greater than the relatively trivial cost of having an IP system. So it is striking that there seems to be no empirical studies or analyses providing conclusive evidence that an IP system is indeed worth the cost. Every study I have ever seen is either neutral or ambivalent, or ends up condemning part or all of IP systems. Utilitarian IP advocates remind of the welfarist liberals skewered by Thomas Sowell in his The Vision of the Anointed: Self-Congratulation as a Basis for Social Policy–liberals continue to advocate policies long after there is overwhelming evidence these policies do not work, even by the naive, socialistic standards of their proponents; likewise, utilitarians keep repeating the mantra that we need patent and copyright to stimulate innovation and creativity, even though every study continues to find the opposite.

For other studies or discussion of same, see, e.g., Study: Free Markets Superior to Patent Monopolies; Kinsella, Revisiting Some Problems With Patents (2007); Bessen & Meurer: Patents Do Not Increase Innovation; There’s No Such Thing As A Free Patent (note 10); What are the Costs of the Patent System?; The Intellectual Property Quagmire, or, The Perils of Libertarian Creationism (slides 66 et seq.); Petra Moser, “How Do Patent Laws Influence Innovation? Evidence from Nineteenth Century World Fairs,” NBER Working Paper 9099 (August 2003) [AER 95(4), Sept. 2005?] (examines innovations exhibited at World’s Fairs during the 19th century and concludes that countries with patent systems do not have a higher rate of innovation per capita, but that patents affect the industries in which different countries make their innovations); Cole, Patents and Copyrights: Do the Benefits Exceed the Costs?; Lawrence Lessig, The Future of Ideas (2001); Padraig Dixon & Christine Greenhalgh, The Economics of Intellectual Property: A Review to Identify Themes for Future Research (November 2002); Fritz Machlup, U.S. Senate Subcommittee On Patents, Trademarks & Copyrights, An Economic Review of the Patent System, 85th Cong., 2nd Session, 1958, Study No. 15; Fritz Machlup & Edith Penrose, “The Patent Controversy in the Nineteenth Century,” Journal of Economic History 10 (1950), p. 1; Roderick T. Long, “The Libertarian Case Against Intellectual Property Rights,” Formulations 3, no. 1 (Autumn 1995); Stephen Breyer, “The Uneasy Case for Copyright: A Study of Copyright in Books, Photocopies, and Computer Programs,” Harvard Law Review 84 (1970), p. 281; Wendy J. Gordon, “An Inquiry into the Merits of Copyright: The Challenges of Consistency, Consent, and Encouragement Theory,” Stanford Law Review 41 (1989), p. 1343; Jesse Walker, “Copy Catfight: How Intellectual Property Laws Stifle Popular Culture,” Reason (March 2000).

See also: Jonathan M. Barnett, Cultivating the Genetic Commons: Imperfect Patent Protection and the Network Model of Innovation, 37 U. San Diego L. Rev. 987, 1008 (2000) (“There is little determinative empirical evidence to settle theoretical speculation over the optimal scope and duration of patent protection.”) (citing D.J. Wright, “Optimal patent breadth and length with costly imitation,” 17 Intl. J. Industrial Org. 419, 426 (1999)); Robert P. Merges & Richard R. Nelson, “On the Complex Economics of Patent Scope,” 90 Colum. L. Rev. 839, 868-870 (1990) (stating that most economic models of patent scope and duration focus on the relation between breadth, duration, and incentives to innovate, without giving serious consideration to the social costs of greater duration and breadth in the form of retarded subsequent improvement)); Tom W. Bell, Prediction Markets for Promoting the Progress of Science and the Useful Arts, 14 G. Mason L. Rev. (2006):

But [patents and copyrights] for the most part stimulate only superficial research in, and development of, the sciences and useful arts; copyrights and patents largely fail to inspire fundamental progress. … Patents and copyrights promote the progress of the sciences and useful arts only imperfectly. In particular, those statutory inventions do relatively little to promote fundamental research and development ….

And see Thomas F. Cotter, “Introduction to IP Symposium,” 14 Fla. J. Int’l L. 147, 149 (2002) (“[E]mpirical studies fail to provide a firm answer to the question of how much of an incentive [to invent] is necessary or, more generally, how the benefits of patent protection compare to the costs.”); Mark A. Lemley, Rational Ignorance at the Patent Office, 95 Northwestern U. L. Rev. (2001), at p. 20 & n. 74:

The patent system intentionally restricts competition in certain technologies to encourage innovation. Doing so imposes a social cost, though the judgment of the patent system is that this cost is outweighed by the benefit to innovation. … There is a great deal of literature attempting to assess whether that judgment is accurate or not, usually without success. George Priest complained years ago that there was virtually no useful economic evidence addressing the impact of intellectual property. … Fritz Machlup told Congress that economists had essentially no useful conclusions to draw on the nature of the patent system.

See further Julie Turner, Note, “The Nonmanufacturing Patent Owner: Toward a Theory of Efficient Infringement,” 86 Cal. L. Rev. 179, 186-89 (1998) (Turner is dubious about the efficacy of the patent system as a means of inducing invention, and would argue against having a patent system if this were its only justification); F.A. Hayek, The Fatal Conceit: The Errors of Socialism (U. Chicago Press, 1989), p. 36:

The difference between [copyrights and patents] and other kinds of property rights is this: while ownership of material goods guides the use of scarce means to their most important uses, in the case of immaterial goods such as literary productions and technological inventions the ability to produce them is also limited, yet once they have come into existence, they can be indefinitely multiplied and can be made scarce only by law in order to create an inducement to produce such ideas. Yet it is not obvious that such forced scarcity is the most effective way to stimulate the human creative process. I doubt whether there exists a single great work of literature which we would not possess had the author been unable to obtain an exclusive copyright for it; it seems to me that the case for copyright must rest almost entirely on the circumstance that such exceedingly useful works as encyclopedias, dictionaries, textbooks, and other works of reference could not be produced if, once they existed, they could freely be reproduced. … Similarly, recurrent re-examinations of the problem have not demonstrated that the obtainability of patents of invention actually enhances the flow of new technical knowledge rather than leading to wasteful concentration of research on problems whose solution in the near future can be foreseen and where, in consequence of the law, anyone who hits upon a solution a moment before the next gains the right to its exclusive use for a prolonged period. [citing Fritz Machlup, The Production and Distribution of Knowledge (1962)]

See also Kinsella, Patents and Innovation, noting economic historian Eric Schiff’s conclusion that when the Netherlands and Switzerland temporarily abolished their patent systems, they experienced increased innovation; Petra Moser’s finding that countries without patent systems innovate just as much, if not more, than those with patent systems.

For Mises’s views on IP, see Mises on Intellectual Property.

Update: David Koepsell has compiled a summary of some studies: see here and here, pasted below:

Bibliography with abstracts:

2006 Pollock, Rufus “Innovation and Imitation with and without Intellectual Property Rights, MPRA Paper No. 5025 http://mpra.ub.uni-muenchen.de/5025 Abstract: an extensive empirical literature study indicates that returns from innovation are appropriated primarily via mechanisms other than formal intellectual property rights and that “imitation” is itself a costly activity…

Debrah Meloso, Peter Bossaerts, Jernej Copic, “Promoting Intellectual Discovery: Patents versus markets” Science, Vol. 323. no. 5919, pp. 1335 – 1339, DOI: 10.1126/science.1158624. Abstract: Because they provide exclusive property rights, patents are generally considered to be an effective way to promote intellectual discovery. Here, we propose a different compensation scheme, in which everyone holds shares in the components of potential discoveries and can trade those shares in an anonymous market. In it, incentives to invent are indirect, through changes in share prices. In a series of experiments, we used the knapsack problem (in which participants have to determine the most valuable subset of objects that can fit in a knapsack of fixed volume) as a typical representation of intellectual discovery problems. We found that our “markets system” performed better than the patent system.

Torrance, Andrew W. and Tomlinson, Bill, Patents and the Regress of Useful Arts (May, 28 2009). Columbia Science and Technology Law Review, Vol. 10, 2009. Available at SSRN: Abstract: Patent systems are often justified by an assumption that innovation will be spurred by the prospect of patent protection, leading to the accrual of greater societal benefits than would be possible under non-patent systems. However, little empirical evidence exists to support this assumption. One way to test the hypothesis that a patent system promotes innovation is experimentally to simulate the behavior of inventors and competitors under conditions approximating patent and non-patent systems. Employing a multi-user interactive simulation of patent and non-patent (commons and open source) systems (“The Patent Game”), this study compares rates of innovation, productivity, and societal utility. The Patent Game uses an abstracted and cumulative model of potential innovations, a database of potential innovations, an interactive interface that allows users to invent, make, and sell these innovations, and a network over which users may interact with one another to license, assign, infringe, and enforce patents. Initial data generated using The Patent Game suggest that a system combining patent and open source protection for inventions (that is, similar to modern patent systems) generates significantly lower rates of innovation (p<0.05), productivity (p<0.001), and societal utility (p<0.002) than does a commons system. These data also indicate that there is no statistical difference in innovation, productivity, or societal utility between a pure patent system and a system combining patent and open source protection.

2005 Moser, Petra, “How Do Patent Laws Influence Innovation? Evidence from Nineteenth-Century World’s Fairs” in American Economic Review, Vol 95, Issue 4. Abstract: Studies of innovation have focused on the effects of patent laws on the number of innovations, but have ignored effects on the direction of technological change. This paper introduces a new dataset of close to fifteen thousand innovations at the Crystal Palace World’s Fair in 1851 and at the Centennial Exhibition in 1876 to examine the effects of patent laws on the direction of innovation. The paper tests the following argument: if innovative activity is motivated by expected profits, and if the effectiveness of patent protection varies across industries, then innovation in countries without patent laws should focus on industries where alternative mechanisms to protect intellectual property are effective. Analyses of exhibition data for 12 countries in 1851 and 10 countries in 1876 indicate that inventors in countries without patent laws focused on a small set of industries where patents were less important, while innovation in countries with patent laws appears to be much more diversified. These findings suggest that patents help to determine the direction of technical change and that the adoption of patent laws in countries without such laws may alter existing patterns of comparative advantage across countries

Anthony Arundela, * and Isabelle Kablab “What percentage of innovations are patented? empirical estimates for European firms” in Research Policy, Volume 27, Issue 2, June 1998, Pages 127-141. Abstract: A 1993 survey on the innovative activities of Europe’s largest industrial firms obtained useable results on patenting activities for 604 respondents. The data are used to calculate the sales-weighted propensity rates for 19 industries. The propensity rates equal the percentage of innovations for which a patent application is made. The propensity rates for product innovations average 35.9%, varying between 8.1% in textiles and 79.2% in pharmaceuticals. The average for process innovations is 24.8%, varying from 8.1% in textiles to 46.8% for precision instruments. Only four sectors have patent propensity rates, for both product and process innovations combined, that exceed 50%: pharmaceuticals, chemicals, machinery, and precision instruments. Regression results that control for the effect of industry sector show that patent propensity rates increase with firm size and are higher among firms that find patents to be an important method for preventing competitors from copying both product and process innovations. The effect of secrecy is not so straightforward. Firms that find secrecy to be an important protection method for product innovations are less likely to patent, as expected, but secrecy has little effect on the propensity to patent process innovations. The R&D intensity of the firm has no effect on patent propensity rates for both product and process innovations. The sector of activity has a strong influence on product patent propensities but very little effect on process patent propensities, after controlling for the effect of other factors.

Helios Herrera & Enrique Schroth, 2003.
“Profitable Innovation Without Patent Protection: The Case of Derivatives,” Working Papers 0302, Centro de Investigacion Economica, ITAM. Abstract: Investment banks develop their own innovative derivatives to underwrite corporate issues but they cannot preclude other banks from imitating them. However, during the process of underwriting an innovator can learn more than its imitators about the potential clients. Moving first puts him ahead in the learning process. Thus, he develops an information advantage and he can capture rents in equilibrium despite being imitated. In this context, innovation can arise without patent protection. Consistently with this hypothesis, case studies of recent innovations in derivatives reveal that innovators keep private some details of their deals to preserve the asymmetry of information.

2008 Boldrin, M and Levine, D, Against Intellectual Property, Cambridge University Press. Reviews: ‘One should bear a heavy burden of proof to enjoy a monopoly. Boldrin and Levine have dramatically increased that burden for those who enjoy intellectual monopoly. All economists, lawyers, judges, and policymakers should read this book.’ W. A. Brock, University of Wisconsin, Madison ‘Boldrin and Levine, highly respected economic theorists, have produced a lively and readable book for the intelligent layman. In it, they challenge conventional wisdom about patents and argue that we would be better off without them. The book will open a fresh debate on the policy on intellectual property protection.’ Boyan Jovanovic, New York University ‘There is a growing and important skepticism about the fundamental rules we have used to regulate access to information and innovation. This beautifully written and compelling argument takes the lead in that skeptical charge.’ Lawrence Lessig, Stanford Law School ‘For centuries, intellectual property rights have been viewed as essential to innovation. Now Boldrin and Levine, two top-flight economists, propose that the entire IPR system be scrapped. Their arguments will generate controversy but deserve serious examination.’ Eric Maskin, Nobel Laureate, Institute for Advanced Study, Princeton ‘This is an important and needed book. The case made by Boldrin and Levine against giving excessive monopoly rights to intellectual property is a convincing one. Monopoly in intellectual property impedes the development of useful knowledge. I think they make the case that granting these monopoly rights slows innovation.’ Edward C. Prescott, Nobel Laureate, University of Minnesota ‘Boldrin and Levine present a powerful argument that intellectual property rights as they have evolved are detrimental to efficient economic organization.’ Douglass C. North, Nobel Laureate, Washington University in St. Louis ‘How have we come to view ideas as if they have some physical existence that we can lock up behind a set of property rights laws akin to, but remarkably different from, those we use to protect our physical property? This is the central question in Against Intellectual Monopoly by Michele Boldrin and David Levine. The answer they come to is startling: except in a few rare cases, intellectual property protection does more economic harm than good and ought to be eliminated. The technology of digital computers and the Internet, as Boldrin and Levine show again and again, has exposed long-standing moral shortcomings of current intellectual property laws in a particularly stark way.’ Stephen Spear, Carnegie Mellon University

Fiona Murray, Scott Stern, “Do Formal Intellectual Property Rights Hinder the Free Flow of Scientific Knowledge? An Empirical Test of the Anti-Commons Hypothesis”, NBER Working Paper No. 11465*Issued in July 2005 NBER Program(s): IO PR. Abstract: While the potential for intellectual property rights to inhibit the diffusion of scientific knowledge is at the heart of several contemporary policy debates, evidence for the “anti-commons effect” has been anecdotal. A central issue in this debate is how intellectual property rights over a given piece of knowledge affects the propensity of future researchers to build upon that knowledge in their own scientific research activities. This article frames this debate around the concept of dual knowledge, in which a single discovery may contribute to both scientific research and useful commercial applications. A key implication of dual knowledge is that it may be simultaneously instantiated as a scientific research article and as a patent. Such patent-paper pairs are at the heart of our empirical strategy. We exploit the fact that patents are granted with a substantial lag, often many years after the knowledge is initially disclosed through paper publication. The knowledge associated with a patent paper pair therefore diffuses within two distinct intellectual property environments – one associated with the pre-grant period and another after formal IP rights are granted. Relative to the expected citation pattern for publications with a given quality level, anticommons theory predicts that the citation rate to a scientific publication should fall after formal IP rights associated with that publication are granted. Employing a differences-indifferences estimator for 169 patent-paper pairs (and including a control group of publications from the same journal for which no patent is granted), we find evidence for a modest anti-commons effect (the citation rate after the patent grant declines by between 9 and 17%). This decline becomes more pronounced with the number of years elapsed since the date of the patent grant, and is particularly salient for articles authored by researchers with public sector affiliations.

Thomas David and André Mach, Institutions and Economic Growth: The Successful Experience of Switzerland (1870-1950)
UNU-WIDER
Series:
WIDER Research Paper
Volume:
2006/101
Title:
Institutions and Economic Growth: The Successful Experience of Switzerland (1870-1950)

***

I’ll try again… my comments weren’t making it through, for some reason. I had attempted to post a list of references with abstracts, which might have been too long. Instead, here’s a set without abstracts. These are the files I offered to forward to Gene and anyone else who wanted to read up on the sources I had prepared for our debate, that Gene alleges I am somehow a “fraud” for not disclosing, though I have offered the full articles repeatedly… As for commenting a site regarding anarchism, Gene did the same. Anyway, for anyone who wants to read more, please see below:

for another take on the problem with IP, see my Cardozo talk slides here:
http://davidkoepsell.com/TheEthicalCaseAgainstIP.ppt.htm

as well, here’s a partial list of references on our side of the debate:

2006 Pollock, Rufus “Innovation and Imitation with and without Intellectual Property Rights, MPRA Paper No. 5025 http://mpra.ub.uni-muenchen.de/5025

Debrah Meloso, Peter Bossaerts, Jernej Copic, “Promoting Intellectual Discovery: Patents versus markets” Science, Vol. 323. no. 5919, pp. 1335 – 1339, DOI: 10.1126/science.1158624.

Torrance, Andrew W. and Tomlinson, Bill, Patents and the Regress of Useful Arts (May, 28 2009). Columbia Science and Technology Law Review, Vol. 10, 2009. Available at SSRN: http://ssrn.com/abstract=1411328.

2005 Moser, Petra, “How Do Patent Laws Influence Innovation? Evidence from Nineteenth-Century World’s Fairs” in American Economic Review, Vol 95, Issue 4.

Anthony Arundela, * and Isabelle Kablab “What percentage of innovations are patented? empirical estimates for European firms” in Research Policy, Volume 27, Issue 2, June 1998, Pages 127-141.

Helios Herrera & Enrique Schroth, 2003.
“Profitable Innovation Without Patent Protection: The Case of Derivatives,” Working Papers 0302, Centro de Investigacion Economica, ITAM.

2008 Boldrin, M and Levine, D, Against Intellectual Property, Cambridge University Press.

Fiona Murray, Scott Stern, “Do Formal Intellectual Property Rights Hinder the Free Flow of Scientific Knowledge? An Empirical Test of the Anti-Commons Hypothesis”, NBER Working Paper No. 11465*Issued in July 2005 NBER Program(s): IO

Thomas David and André Mach, Institutions and Economic Growth: The Successful Experience of Switzerland (1870-1950)
UNU-WIDER
Series:
WIDER Research Paper
Volume:
2006/101
Title:
Institutions and Economic Growth: The Successful Experience of Switzerland (1870-1950)

Update: File-sharing has weakened copyright—and helped society Ars technica (21 June 2010) (“they round up a host of studies from the past few years suggesting that, on average, one-fifth of declining music sales might be chalked up to piracy. (The rise of new entertainment options like video game has also hurt the business, and consumers finally stopped “re-buying” old albums on CD by the mid-2000s.)  … But looking at such declines provides only a narrow view. Looked at more broadly, the music industry “has grown considerably” in the last few years. When concert revenue is added to recorded music revenue, the authors note that the overall industry grew more than 5 percent between 1997 and 2007. That’s in large part because consumers’ willingness to pay for “complements” like concerts and merchandise goes up as the price of music and movies falls, and because consumers are exposed to many more artists when prices are low or nonexistent. Even if the music industry was shrinking, though, the authors point out that creativity has not declined—which suggests that weaker copyright can still promote the “Progress” sought by the Founders.”)

Update:

Copyright:

  • No Copyright Law: The Real Reason for Germany’s Industrial Expansion?, By Frank Thadeusz (Jeff Tucker, Germany and Its Industrial Rise: Due to No Copyright); German version: Explosion of knowledge, By Frank Thadeusz, der Spiegel (German) (new study by economic historian Eckhard Hoffner shows that Germany’s lack of copyright in the 19th century led to an unprecedented explosion of publishing, knowledge, etc., unlike in neighboring countries England and France where copyright law enriched publishers but stultified the spread of knowledge and limited publishing to a mass audience. According to Robert Groezinger, “This article in Der Spiegel is all about how the absence of copyright in Germany led to an “explosion of knowledge” in the 19th century. The reason there was no copyright law was that there was no central government until 1871. This contrasts with the UK, where there had been copyright since 1710, and the number of publications was lower by a factor of 10 compared to Germany. Also, the number of copies printed was much, much lower in the UK (hundreds as compared to ten thousand or so). The article claims that this is the main reason that Germany’s production and industry had caught up with everyone else by 1900.”

Update:

[I]n the current state of knowledge, economists know almost nothing about the effect on social welfare of the patent system or of other systems of intellectual property.

George Priest, “What Economists Can Tell Lawyers About Intellectual Property,” 8 Res. L. & Econ. 19 (1986).

Update: Andrew Torrance: Patents and the Regress of Useful Arts

An ars technica post, Study: free markets superior to patent monopolies, reports:

Our economic system is based on the expectation that markets can provide optimal solutions more efficiently than monopolies, with one glaring exception: patents, which are structured in a “winner takes all” manner. A study appearing in today’s edition of Science suggests that markets might work here, too.

{ 12 comments }

Jesse July 2, 2009 at 12:10 pm

Hi Stephen,
I agree with a lot of your positions on IP, I was wondering what your take on the argument that the creators of content can recreate the copyright and patent via private contracts?

i.e. prior to sale of a book, you have to agree to a contract terms that you will not copy this book and will be held liable for damages if you give the book to someone else who copies it.

Or the no reverse engineering language that exists in a lot of technology product license agreements?

Thanks!

Jeremy H. July 2, 2009 at 12:14 pm

Stephan,
Great summary of the literature! FYI, the Moser working paper was published in the AER 95(4), Sept. 2005.

Silas Barta July 2, 2009 at 12:21 pm

I can only see studies that agree with my preordained conclusions too.

Oh, look, a study that finds that property rights hurt indigenous peoples! Go socialism!

Mark July 2, 2009 at 1:55 pm

Please post a link to the study Silas. I’d be interested in seeing any legitimate arguments against private property rights.

Jesse July 2, 2009 at 6:26 pm

@Jesse (I am a different one)

“i.e. prior to sale of a book, you have to agree to a contract terms that you will not copy this book and will be held liable for damages if you give the book to someone else who copies it.”

I believe this may be addressed in Against IP or whatever the title was (by Kinsella).

Basically you have to think: whose property is that book that you just bought? It’s definitely not yours if you don’t have a say in what you can peaceably do with it. With the contract example you give, “damages” would be very hard to define…

I’m sorry that I’m not really all that helpful with this but I am so amateur and my reasoning function isn’t humming right now… but I hope those points help you along!

Also, I take exclusive right in the name Jesse, so, cool name, but cut it out.

I Hate Patents July 4, 2009 at 10:57 am

Patents actually discourage innovation. Because they represent an added expense, overpaid and overpriced lawyers and all the months if not years of research it takes before the patent is approved.

All this money does not go into development and marketing of the invention.

Patents discourage innovation because current patents, written in broad and gobble-the-gook sweep large language, threaten and deter would-be inventors.

If you don’t patent your inventions, because they are too expensive, you run the risk of having someone else steal yours by patent it for himself.

Some inventions are so complicated and complex that they don’t need patents. Just shut up and keep your secrets to yourself and let competition try to reverse-engineer your stuff if they feel up to the challenge. They will always be a step back.

But the most absurd is software patents. The most absurd example is the One-Click purchase button of Amazon.com.

Now, If I started a website to sell all my surplus stuff and wanted to add a button that you only need to click once to complete the sale and order, Amazon.com could sue me for patent infringement or demand compensation. What a joke !

A one click button is not an invention, it’s an application. Anybody can program a simple button you need to click only once to complete the purchase. But because Amazon.com has patented it, you put such a button on your own website at the risk of having armed government thugs put a bloody end to your business.

This is completely insane !!!

Terrance Boult July 19, 2009 at 2:33 pm

The post, and many of the citations, are confusing or at least mixing invention and innovation, the difference is critical to the value of IP protection.

Invention is the creation of the idea and reduction to practice. It can be, the “eureka” moment, or takes years of dedicated research. There are moderately good arguments why patent’s may only a mild effect on invention rates except in very high cost long term fields (where government subsidies for research may be effective).

Innovation is taking the idea forward to have social/market impact. The production/marketing of the invention is what is protected by patents, and by doing so it support businesses investing the money needed to move from an invention to an actual business/product.

For a business to invest there must be an incentive, and if it cannot be protected the risk is higher and the investment must reflect that risk. The same is true for the risk/cost of patenting. Its always a balance on how much to spend on patenting and how much to spend on building/advancing the business case. The increasing pace of innovation, including VC backed startups (which place a very strong value on IP protection), may be the best validation of the process. The quickly shrinking average age of S&P 500 companies is a testament to the change from the advantage shifting from established market leaders (who can move an idea from concept to product much faster than a new startup), to new innovative companies which depend on those early external investment.

If you ever had an idea that is going to take millions to be converted into a product/ proven (and maybe get FDA approval), you would understand its unlikely a company will invest that without a model for ROI. If you try to launch a tech-based business without some IP protection, good luck raising money.

Anyone is free to invent and just publish. I do it all the time. So if you really believe IP/Patenting is a bad investment then you don’t have to do it. I make that choice regularly, not based on how much I will personally make, but on how much will be needed to have the invention used — to take the idea to market to have it impact. I’d agree there is a lot of potential good in Patent reform, but the new study does not convince me the process is bad.

There have been no conclusive decisions on the value of patent protection because there can be no controlled experiments to address the question (and good researchers know it). Those wishing to argue to overturn a dominant system can always try to use selective statistics, from which one can draw a wide range of conclusions because the data is impacted by myriad uncontrolled variables. If you want to draw conclusions from simulation as the paper does, the simulation has to be validated. The simulation used in the paper is not validated. Even validating a simulation is very tough, it can be programmed past data and validated in its ability to predict the future past. But it needs data for both its “training” and testing. Hence it could never simulate/predict a global environment without IP protection, as there is no data for testing the predictions. Therefore validation will always be dubious. Testing IP protection ideas on small scales fails for this since for small amounts of money passion and personal connections can outweigh business analysis.

If the inventor is not personally taking it to market, there needs to be a reason for someone else to use their improvements rather than using their internal stuff (which may be much worse but is their secret). Because that is intuitative and generally well accepted, publishing a paper supporting the IP system would take lots of data to make it interesting, as its supporting the status quo and would not lead to much discussion (or references). Publishing a paper attacking it requires less (no) real data because even if wrong it will lead to discussion and citations, which is at the heart of the publishing business and academic motivations for publishing.

Dale Halling July 20, 2009 at 3:08 pm

Further to Terry’s point, there are numerous questions about the simulaiton and the bias of the authors.

Questions about the Simulation

I wonder what the simulation would say about whether real property encourages economic activity.

The simulation is a web game played by real people. When the players decide to innovate they have a choice between patenting it, open sourcing it and making it. Under “Open Source” the invention and any invention incorporating it has to be open source. Open source licensing (Intellectual Property) does not give you this power. I can circumvent the copyright of a open source licensed software by independent derivation and then build on it to develop something and patent it. If the open source innovation is not software, the inventor does not even have this control over the rest of the world. The game is only real if the rights allowed in the game are real. If they want to simulate no patents or other intellectual property it has to be in a game completely devoid of this choice.

In addition, the game does not seem to allow a player to just be a manufacturing copycat, not innovate at all to make money. We also know nothing of costs of inventing, patenting and manufacturing in their game – but clearly this will bias the results.

Biases of the Authors

One other clear sign that the authors are biased is they state a patent is a MONOPOLY – see http://hallingblog.com/2009/05/31/the-myth-that-patents-are-a-monopoly/.

Under “Impediments to Innovation” they state “Inventors have been known to balk at patenting their work out of sheer dread of interacting with patent attorneys, let alone paying their fees.” No bias on the part of the authors there.

The first truly functional patent system just happens to correspond with the inflection point where per capita income in the west starts growing – but that just a coincidence.

Stephan Kinsella July 20, 2009 at 4:07 pm

Patent attorney Dale Halling points to problems with the simulation. Well, there are problems with any utilitarian analysis, true; but it is the IP advocates who make the positive claim that a patent system generates a net benefit. Yet they cannot point to a single study conclusively showing this. There are mountains of studies concluding the patent system is not a net benefit … where is the evidence to back up the IP proponents’ claims?

Mr. Halling, I put it to you: what, in dollar terms, is the cost of the patent system? What is the dollar value of the innovation it spurs? I can do the math and subtract them to find out the net benefit (or cost), if you’ll just supply those numbers.

“The first truly functional patent system just happens to correspond with the inflection point where per capita income in the west starts growing – but that just a coincidence.”

Well, yes. This does not satisfy your burden of proof. The west started growing also at a time when there was chattel slavery, growing taxation, democracy, and recurring wars. So what?

Mr. Halling also once again complains that patents are described as a monopoly and claims he has shown it’s a myth; I responded in detail to this here, Are Patents “Monopolies”?

John Skardon December 17, 2010 at 7:13 am

I’m sorry I found this blog so late. Lots of provocative thoughts. I appreciate Mr Kinsella disclosing his political inclinations (libertarian). However, I’m entering into a phase in my dissertation where the role of patents in innovation becomes a key section. Having started up a company and filed a bunch of patents I know first hand how important they are to small companies trying to get established. To some degree, I disagree with the the over-arching view expressed here about patents. But like a lot of things in life, applying an analysis too high or too low (my bias) misses a lot of detail. Patents are certainly more important in some industries than others. Patent trolls have emerged recently, clearly documenting Mr. Kinsella’s position that patents are now retarding innovation.

Stephan Kinsella December 17, 2010 at 8:45 am

Patents are “important” because of the system. That does not mean we should have the system. When your competitors can get patents and use them to sue you, you need to obtain your own if only for defensive purposes. But it’s a huge waste.

Likewise, it’s “important” to have tax attorneys and tax accountants in today’s tax-ridden world but that does not mean we ought to have taxes. IP, like taxes, should be abolished.

Looking for Patent Drawings May 13, 2011 at 12:52 pm

What is interesting is that I just read an article (though not as well sited as this one) that said just the opposite. It said that without patents, no one would be able to make money off of their inventions, and as such, would feel no need to create. I love that you have references; it proves your theory much more thoroughly.

Comments on this entry are closed.

{ 3 trackbacks }

Previous post:

Next post: