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Home | Blog | The Economist on the American Patent System

The Economist on the American Patent System


Below is a letter to the editor I just sent in to The Economist in response to a pro-patent piece. I doubt they will publish it, but here it is.


Your May 5th piece on Patently Absurd contends that “America’s system of intellectual property has played a crucial role in generating economic growth, encouraging inventors and entrepreneurs by ensuring that they can make money from their good ideas” and that “there is no doubt that, collectively, [patents] are a useful contribution to an economy that is still struggling to grow.”

In fact, there is quite a bit of doubt. The Founders had no proof that any innovation gains from a patent system would outweigh its undeniable costs; they had only a hunch. In the ensuing two centuries there has been no clear showing that patent systems result in net gains for an economy. In an exhaustive 1958 study prepared for the U.S. Senate Subcommittee On Patents, Trademarks & Copyrights, economist Fritz Machlup concluded:

“No economist, on the basis of present knowledge, could possibly state with certainty that the patent system, as it now operates, confers a net benefit or a net loss upon society. The best he can do is to state assumptions and make guesses about the extent to which reality corresponds to these assumptions. … If we did not have a patent system, it would be irresponsible, on the basis of our present knowledge of its economic consequences, to recommend instituting one.” [Fritz Machlup, An Economic Review of the Patent System 79-80 (1958)]

The empirical case for patents has not have not improved in the following fifty years. As George Priest wrote in 1986, “[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).]

Similar comments are echoed by other researchers. François Lévêque and Yann Ménière, for example, of the Ecole des mines de Paris, observed in 2004:

“The abolition or preservation of intellectual property protection is … not just a purely theoretical question. To decide on it from an economic viewpoint, we must be able to assess all the consequences of protection and determine whether the total favorable effects for society outweigh the total negative effects. Unfortunately, this exercise [an economic analysis of the cost and benefits of intellectual property] is no more within our reach today than it was in Machlup’s day [1950s].” [François Lévêque and Yann Ménière, "The Economics of Patents and Copyrights" 102 (2004), available at http://www.bepress.com/cgi/viewcontent.cgi?article=1001&context=leveque]

More recently, Boston University Law School Professors (and economists) Michael Meurer and Jim Bessen conclude that on average, the patent system discourages innovation. As they write: “it seems unlikely that patents today are an effective policy instrument to encourage innovation overall” (James Bessen & Michael J. Meurer, Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk (2008, http://researchoninnovation.org/dopatentswork/, p. 216). To the contrary, it seems clear that nowadays “patents place a drag on innovation” (p. 146). In short, “the patent system fails on its own terms” (p. 145).

There is no doubt that the patent system infringes on liberty and property rights, and imposes considerable costs on individuals and the economy. (See, e.g., the comments of Professor Alan Devlin, “Awarding an inventor twenty years exclusivity naturally entails considerable social cost — a cost that rises in direct proportion to the value of the covered invention. In certain instances — those where the patented technology is so useful that no substitutes exist — the award of a patent creates a complete economic monopoly.” [Alan Devlin, “The Misunderstood Function of Disclosure in Patent Law”].)

Given the inability of researchers to show that there are any net innovation gains to the patent system at all, much less gains that outweigh the system’s costs, there is no basis for supporting patent law. Property rights permits scarce goods to be used productively, in a cooperative division of labor. Ideas, knowledge, information, by contrast, may be used by many people at once. Information spreads, is transmitted, is learned, and emulated. Emulation itself is a crucial aspect of competition in a market economy. Imposing artificial scarcity on information–which is the goal of the patent system–is a form of censorship and an attempt to protect favored market actors from competition. IP advocates can hardly deny this. As free market economist and patent proponent William Shughart admits, “patents and copyrights slow down the diffusion of new ideas for a reason: to ensure there will be more new ideas to diffuse.” [William F. Shughart II, “Ideas Need Protection,” The Baltimore Sun (Dec. 21, 2009).]

As for the American Founders, Thomas Jefferson famously observed that “He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.” And as the inventive Benjamin Franklin realised: “As we enjoy great Advantages from the Inventions of others we should be glad of an Opportunity to serve others by any Invention of ours, and this we should do freely and generously.” For the sake of property rights, liberty and, yes, innovation–the patent system should be repealed.

Stephan Kinsella is an attorney in Houston, director of the Center for the Study of Innovative Freedom, and editor of Libertarian Papers.

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