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Revisiting some problems with patents

August 2, 2007

Tags Legal SystemMonopoly and Competition

I was recently talking with a very intelligent fellow patent attorney, and we got around to the subject of policy issues. One thing led to another and he discovered, and was a bit shocked by, myt opposition to patent and copyright. He was interested in some further information on the topics we discussed so I compiled an email with some information. As this corrals some useful links, material, and arguments about patents, I've provided an edited version below.

[Update: See my post, What are the Costs of the Patent System?]

The Principled Case Against Patents

For a theoretical critique of patent and copyright, see my 2001 JLS article Against Intellectual Property. A condensed version of the arguments presented there can be found in In Defense of Napster and Against the Second Homesteading Rule (LRC 2000). (The longer one has been translated into Spanish, Polish, and Georgian.) I must admit IP is not my greatest policy interest--I find other things more interesting, like rights theory, economic methodology, philosophy, etc.--but I've been pulled into this since there are so few people with clear understanding of IP and also a clear (libertarian) understanding of economics and (property) rights. Perhaps some day I'll do a monograph or book version of some of these ideas.

Update: See also Jacob Sullum's Reason column, The Knock Against Knockoffs, which also summarizes flaws with the moral case for IP.

Studies on the Costs of the Patent System

As for more utilitarian aspects--the alleged "net gain" provided by a patent system--this is addressed in There's No Such Thing as a Free Patent, Mises.org, 2005 (the title is a take off on the Robert Heinlein phrase "There Ain't No Such Thing As A Free Lunch," sometimes attributed to Milton Friedman). I argue in this piece that patent attorneys and other advocates of the IP system claim the patent system is justified because it stimulates innovation, but they almost never try to really figure out whether the alleged benefits are greater than the costs. Here's a good example of that: "A Patent Success Story". This post notes that Patent attorney Dennis Crouch had written he was "proud of the patent system" in the case of the patented drug Zocor, because "[t]here is no question that patent rights played a major role in providing incentive to Merck to develop and test Zocor ... The incentive worked ...." I asked him what exactly the surplus was (the "benefits" of the patent system, minus its "costs"). In reply, he backed down and said that "my little anecdote here does not prove anything and there are dozens of questions that must be analyzed before we would could determine whether the patent grant on simvastatin [Zocor] was an overall public good."

When I noted that to my knowledge there are no serious studies concluding the patent system is a net gain, my colleague remarked that he thought that someone named Machlup had done a study at one time showing that the patent system is beneficial and what the "optimal" patent term should be. However, Machlup, in An Economic Review of the Patent System (a 1958 study cited in note 10 of my There's No Such Thing as a Free Patent piece), does not, as far as I'm aware, determine any "optimal" patent term, nor does he conclude that the patent system encourages innovation that is worth more than the cost of the system. In fact, Machlup says:

"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 one does not know whether a system "as a whole" (in contrast to certain features of it) is good or bad, the safest "policy conclusion" is to "muddle through"--either with it, if one has long lived with it, or without it, if one has lived without it. 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. But since we have had a patent system for a long time, it would be irresponsible, on the basis of our present knowledge, to recommend abolishing it." (see pp. 79-80)

Hardly a ringing endorsement! As noted by French researches Francois Leveque and Yann Meniere of the Ecole des mines de Paris (an engineering university):

"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 determien 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]."

The most recent study I'm aware of is reported in my post Do Patents Discourage Innovation? Yeah. But So What.: Boston University Law School Professors (and economists) Michael Meurer and Jim Bessen conclude (as summarized by Patently-O):

"the pair has compiled a tremendous amount of economic data regarding patents and companies who patent. ... Meurer & Bessen's bottom line: On average, the patent system is bad for innovation. They agree innovator firms often profit from their own patents. However, the pair's data shows that the innovator firms are also the ones most likely to be targeted by other patent holders. (litigation, licensing, etc.) In today's system, they find, the disincentives created by other people's patents outweighs the incentives to build your own portfolio. I.e., on average, the patent system discourages innovation."

And here's another recent study about how patents harm innovation: Patents Chilling Effect on Science, reporting that:

"The American Association for the Advancement of Science recently conducted a survey on the effect of patenting on the sciences. The results are frightening: 1/5th or more of all research projects in the United States are being chilled by patent holders. The sheer amount of research being canceled because of licensing issues is astounding, but at the same time many of these researchers hold their own patents and therefore contribute to the problem."

See also Mike Masnick, The Case For Patents Harming Innovation, TechDirt (2006); The Patent Epidemic: It's wasting companies' money and slowing the development of new products, Business Week (Jan. 9, 2006).

Other sources that talk about whether the patent system is worthwhile are collected in the post Intellectual Property Resources, including:

See also Michele Boldrin & David K. Levine, Growth and Intellectual Property (draft). In this paper, Boldrin & Levine do a calculation, in the context of a model in which patents are good for innovation (in fact, an extreme version: no innovation at all without at least some patents). From an email by Boldrin to me, 9/28/07: "Then we compute what a 'benevolent dictator' would consider to be the socially optimal degree of patent protection. By assumption all the transaction/legal costs you are looking at are assumed away here. Then we go on and use data to figure out if the current level of IP protection in different industries/countries is too high or too low. We find it is too high, sometimes by orders of magnitude."). The paper assumes "a standard model in which IP protection is socially beneficial" (even though they reject the "standar model" and argue elsewhere "that IP is not generally socially beneficial." Even assuming a world in which IP is "socially beneficial," they conclude that

  • The elasticity of total monopoly revenue is increasing, hence the term of IP protection should decrease over time as the market size increases. Our best estimate, given the historical growth rate of market size, is that IP protection terms should decrease of about two months per year.
  • Current copyright and patent terms are equivalent to complete monopoly protection for the full economic life of new goods, and are dramatically higher than optimal ones, sometime by two orders of magnitude.
  • On the basis of the available evidence, our best estimate of the length of optimal copyright term is about one year, and that of patents is about seven to thirteen years.

 

Distortion of Innovation and Innovation without Patents

Another classic commentary is that of Arnold Plant, which explains that patents distort the innovative process. Quotes from Plant and Rothbard on this, as well as other relevant links, can be found in my first comment to the blogpost The Three Stages of Invention. Here Plant explains why it's incorrect to assume that without patents there will be no innovation, and that the patent system clearly distorts the realm of innovative and investment activity.

This topic is also discussed in n. 44 and accompanying text of my Against Intellectual Property.

As for Plant's views, see his The Economic Theory Concerning Patents for Inventions, sections 16, 19, 20, 24:See also Rothbard, Man, Economy, and State, ch. 10, sec. 7:

Update: See also Jacob Sullum's Reason column, The Knock Against Knockoffs, which summarizes the argument that innovation can occur without IP; and Douglas Clement's article Creation Myths: Does innovation require intellectual property rights?, which discusses the anti-IP theories of Boldrin and Levine.

 

Web Poll

You may find of interest this informal web poll I did--among both patent attorneys and libertarians (and others, such as Digg readers), in which 78% of respondents said "YES" to this question "Would you give up your right to sue others for patent infringement in exchange for immunity from all patent lawsuits?"

Chicago School and Wealth-Maximization

As for the Chicago-school types following the innovation-stimulation/wealth-maximization logic of the patent system to its end, see my post Patents and Utilitarian Thinking Redux: Stiglitz on using Prizes to Stimulate Innovation, which has Stiglitz arguing for a government panel of experts to give taxpayer financed cash awards to innovators (instead of a patent system). Other such proposals abound; see, e.g. Patents and Utilitarian Thinking and The Perils of Utilitarian Thinking.

Admissions by Patent Attorneys

provided above one example already, re "A Patent Success Story", regarding patent attorney Denis Crouch's crawfishing. And here's another fun one involving the same guy: as I noted in Patent Attorney Admission, Crouch admits: "Patents are intended to lure potential inventors into the business of innovation. The truth is, however, that very little is known about how patents really drive innovation." Ha!

This is one of my favorites (see: Miracle--An Honest Patent Attorney!): -- I published a letter in the trade magazine IP Today (see Patent Trolls and Empirical Thinking) where I critiqued patent litigator Joseph Hosteny's defense of patent trolls--in particular his comment that: "the patent system is necessary for there to be invention and innovation."

In response I got an interesting email from a respected patent attorney, a senior partner in the patent department of a major national law firm. Not a political type, just a regular guy--these are just his honest observations based on his long experience in the field:

 

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