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Patents and Innovation (2008)

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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).

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