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Source link: http://archive.mises.org/7880/patents-and-innovation/

Patents and Innovation

March 7, 2008 by

It’s often said that patents are necessary to innovation; and that America’s economic success over the last two centuries can be partly attributed to our patent laws.

In comments to his Techdirt post on “Intellectual Property,” Mike Masnick comments:

[Economic historian Eric Schiff] looked at countries that got rid of their patent system, and found it INCREASED innovation because there was MORE competition in the marketplace. That is companies focused on making more goods for the market, rather than focusing just on patenting things and not having to compete in the market.

Look at the history of the steam engine — which only grew the market AFTER the patents expired, because James Watt made it prohibitively expensive to use, and no innovation could occur until the patents were gone.

Look at the research of Petra Moser, who found that countries without patent systems innovate just as much, if not more, than those with patent systems.

In a Newsweek article, Patent Nonsense, author George Monbiot notes:

In Industrialisation without National Patents, published in 1971, the economic historian Eric Schiff tells the story of the emergence of some of Europe’s biggest corporations. They came into being in Switzerland and the Netherlands during the period (1850-1907 in Switzerland; 1869-1912 in the Netherlands) in which neither country recognised patents. Some of them appear to owe their very existence to this exemption.

In the Netherlands the old patent laws were clumsy and poorly drafted. The government decided they were unreformable, and simply scrapped them. In Switzerland, the confederation developed without them, and decided to keep it that way. Contrary to all current predictions of what the impact of such abrogations would be, in both nations they appear to have contributed to massive economic growth and innovation.

As noted here, “Switzerland and the Netherlands eventually adopted patent laws in response to threats from other industrialised nations. This, Schiff argues, was a political decision, not an economic one. It is, he notes, “difficult to avoid the impression” that the absence of patent laws “furthered, rather than hampered development”.”

See also Petra Moser, How Do Patent Laws Influence Innovation? Evidence from Nineteenth-Century World Fairs (SSRN copy). Its Abstract states:

This paper introduces a new internationally comparable data set that permits an empirical investigation of the effects of patent law on innovation. The data have been constructed from the catalogues of two 19th century world fairs: the Crystal Palace Exhibition in London, 1851, and the Centennial Exhibition in Philadelphia, 1876. They include innovations that were not patented, as well as those that were, and innovations from countries both with and without patent laws. I find no evidence that patent laws increased levels of innovative activity but strong evidence that patent systems influenced the distribution of innovative activity across industries. Inventors in countries without patent laws concentrated in industries where secrecy was effective relative to patents, e.g., food processing and scientific instruments. These results suggest that introducing strong and effective patent laws in countries without patents may have stronger effects on changing the direction of innovative activity than on raising the number of innovations.

See also Petra Moser: Patents do not increase innovation, The Abstract Factory blog (Aug. 19, 2003); Teresa Riordan, A Stroll Through Patent History, N.Y. Times (Sept. 29, 2003); and Brad DeLong, Petra Moser on Nineteenth-Century Innovation, Semi-Daily Journal (Aug. 17, 2003).

{ 9 comments }

kingmidas March 7, 2008 at 8:50 pm

Stephen Knsella citing Petra Moser states: “Inventors in countries without patent laws concentrated in industries where secrecy was effective relative to patents, e.g., food processing and scientific instruments.”

This study is suspect as it dealt with a minute segment of society, which basically has a natural patent. In 1851 and 1876, I doubt there were enough scientific research to replicate somebody’s medical break-through if that inventor chose to keep it secret. The article even states that secrecy was effective in restraining duplication. However, in the present we do not have that luxury. It would be great, if all we had to do is not tell anybody the biological composition of the item to prevent them replicating our invention. However that is not the case. Scientist can easily ascertain the composition of the item today and mass produce it.

P.M.Lawrence March 7, 2008 at 10:00 pm

“Look at the history of the steam engine — which only grew the market AFTER the patents expired, because James Watt made it prohibitively expensive to use, and no innovation could occur until the patents were gone.”

Oh, rubbish. Watt himself faced an obstacle from someone who had patented the crank – and it spurred him to invent the sun and planet motion to achieve the same effect a different way. Likewise the Otto patents inspired the invention of the differential internal combustion engine.

Neither of those are in common use now, precisely because the patented ways are actually better. The problem isn’t that patents hinder innovation – they actually promote it – but that they distort things, so that the inventiveness goes into circumvention rather than actual improvement.

Notice also the bait and switch, common at least since Microsoft started blowing its own horn, of talking up innovation rather than invention. It’s actually the latter that increases productive capacity; putting inventions into wider use is innovation, and certainly it’s what realises the gains, but with competition the next firm can do that job equally well – once the invention is available and accessible, not artificially held back and made into a quasi-monopoly.

TLWP Sam March 7, 2008 at 10:52 pm

Does the absence and the innovative in areas where trade secrets have a good chance of staying secret doesn’t exactly negate the concept of patents?

RWW March 8, 2008 at 6:09 pm

Watt himself faced an obstacle from someone who had patented the crank – and it spurred him to invent the sun and planet motion to achieve the same effect a different way.

Shouldn’t the proper “spur” for innovation be necessity, rather than artificial legal obstacles? What if the crank had been the best way to go? Your example only works because it wasn’t.

Dabian March 9, 2008 at 11:14 am

Our increasing in advertising and communication capabilities would replace patents. Unlike the 1800s, we have television and the Internet to advertise inventions, millions of times faster than two hundred years ago. Population grew a hundred times, so a 20-year patent term in 1800 is equivalent to a two-month patent term in 2007. Humans are much more likely to buy invented goods today than two hundred years ago. Thus, a 20-year patent term in 1800 is equivent to almost zero days today.

As you may have noticed, patent holders do not every advertise their inventions.

Our patents killed about millions of people. Life-saving medicine is too expensive for people to buy. Like the example that Africans with AIDS cannot buy medicine.

As you see, the “practical implementation” of an invention only would occur after the patent expired. If the patent is not expired, the price of the invented product is too expensive that it is equivalent to not using the invention.

Intellectual property can be enforced if and only if fraud can be enforced. Internet fraudsters on eBay cannot usually be punished. Trade secrets and open source licenses are not entirely enforceable in anarchism.

All software would remain public domain in anarchism. Copyleft is a kind of intellectual property. Public domain would undermine software innovation, as open source developers would make it close sourced, instead of releasing the source after they improved it.

However, the 20-year patent term is enforced by international treaties.

nick gray March 9, 2008 at 8:46 pm

However, isn’t it also true that Pharmeceutical companies spend years developing drugs, and so want some years to recoup the initial costs? A non-patent system would give them no encouragement to even look for the drugs that they later bring to the market.
Isn’t it also true that some countries that start off with low copyright protection then become fierce defenders of patents and copyright? (Japan comes to mind.)
A final point- if you introduced a patent-free zone in America, but allowed people to enter or leave as they liked, i bet that the inventors and enterpreneurs would leave. Why should they stay, if they have a choice?

TLWP Sam March 9, 2008 at 9:50 pm

“Our patents killed about millions of people. Life-saving medicine is too expensive for people to buy. Like the example that Africans with AIDS cannot buy medicine.”

That’s a daring statement as to make a similar one elsewhere without qualifications would be regarded as ‘Socialism’. In other words, that statement steers rather close to a ‘positive duty’ than a ‘negative right’. Furthermore, how is refraining to supply people with AIDS drugs ‘killing’ them? AIDS is still incurable and these drugs rather prolong the lives of the victims. Perhaps, a similar statement can be made for DDT? If those in the West don’t like DDT and aren’t going to make it or ship it to Africa so what? The real problem would be if other countries, especially in Africa, are forbidden by the West to make and ship their own DDT (and likewise others who are forbidden to make and ship their own medicine).

Francisco Torres March 9, 2008 at 10:15 pm

A final point- if you introduced a patent-free zone in America, but allowed people to enter or leave as they liked, I bet that the inventors and entrepreneurs would leave.

Why would they? Entrepreneurship is based on opportunities and not the existence of patents. Inventors would still enjoy the profits that come by being the first to market – the only difference being that competition would appear sooner, and that an inventor would not have an incentive to lose precious time and money defending patents.

A non-patent system would give [Pharmaceuticals] no encouragement to even look for the drugs that they later bring to the market.

That statement stems from a misunderstanding of how drugs come into existence in the US. The high cost of developing a new drug comes from the ridiculously complicated regulations imposed by the FDA. The patent system only makes the cost of introduction harder for competing companies, reducing the number of new drugs in the market. You part from a ceteris paribus fallacy but I remind you that things are NOT equal, and that there is NOT a free market for drugs.

dabian March 10, 2008 at 2:41 pm

“However, isn’t it also true that Pharmeceutical companies spend years developing drugs, and so want some years to recoup the initial costs?”

No. Pharmeceutical companies spend these years TESTING their drugs, because the FDA forced them to. Developing a new drug does not usually take years. Creativity is spontaneous. See the “Aha! effect.”

“A non-patent system would give them no encouragement to even look for the drugs that they later bring to the market.”

Reducing the patent term to one year is adequate, giving our current advertising capabilities and increased demand for drugs due to population growth. Those that need drugs badly do not want to wait for a year until the patent expires.

“inventors and enterpreneurs”
Not all of them. Patents helped us start our Industrial Revolution, but we do not need them now, because of increased demand for patented products due to population growth and GDP per capita. This is not like the 1800s. We have advertising capabilities. In the 1800s, advertising for the same product is one million times more expensive because there were no fast advertising methods. You have to transport to advertise your invention in the 1800s.

“AIDS is still incurable” I know. But these are some curable drugs that are too expensive because of pharmaceutical monopolies.

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