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Yet Another Study Finds Patents Do Not Encourage Innovation

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.”)

[Cross-posted at Mises blog and AgainstMonopoly]

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{ 1 comment… add one }

  • SA23 January 14, 2013, 7:12 pm

    Hi Stephan,

    Excellent work, I’m a longtime follower. I take issue with your use of “socialist,” however.

    Benjamin Tucker adroitly differentiated between state and libertarian socialism, you can review his writing in chapter two and six of Markets Not Capitalism:

    http://radgeek.com/gt/2011/10/Markets-Not-Capitalism-2011-Chartier-and-Johnson.pdf.

    Tucker also argued against the patent monopoly. He was a libertarian socialist, like every anarchist prior to Rothbard (and most afterward).

    Using socialism to denote statism is inaccurate. I advocate socialist ends by market means — workers should be paid the full product of their labor and society should be structured in the interest of the mass of the population, i.e. labor. In order to accomplish this, the state must be abolished.

    I encourage you to replace “socialist” with “statist,” as I have done. Anarchists reading your article would be turned off by the imprecise use of the term. Keep up the good work.

    Excerpt:

    “Of late the Twentieth Century has been doing a good deal in the way of definition. Now, definition is very particular business, and it seems to me that it is not always performed with due care in the Twentieth Century
    office. Take this, for instance: A Socialist is one who believes that each industry
    should be coordinated for the mutual benefit of all concerned under a government by physical force.

    It is true that writers of reputation have given definitions of Socialism not differing in any essential from the foregoing – among others, General Walker. But it has been elaborately proven in these columns that General Walker is utterly at sea when he talks about either Socialism or Anarchism. As a matter of fact this definition is fundamentally faulty, and correctly defines only State Socialism.
    An analogous definition in another sphere would be this: Religion is belief in the Messiahship of Jesus. Supposing this to be a correct definition of the Christian religion, nonetheless it is manifestly incorrect as a defini- tion of religion itself. The fact that Christianity has overshadowed all other forms of religion in this part of the world gives it no right to a monopoly of the religious idea. Similarly, the fact that State Socialism during the last decade or two has overshadowed other forms of Socialism gives it no right to a monopoly of the Socialistic idea.

    Socialism, as such, implies neither liberty nor authority. The word itself implies nothing more than harmonious relationship. In fact, it is so broad a term that it is difficult of definition. I certainly lay claim to no special authority or competence in the matter. I simply maintain that the word Socialism having been applied for years, by common usage and consent, as a generic term to various schools of thought and opinion, those who try to define it are bound to seek the common element of all these schools and make it stand for that, and have no business to make it represent the specific nature of any one of them. The Twentieth Century definition will not stand this test at all.
    Perhaps here is one that satisfies it: Socialism is the belief that progress is mainly to be effected by acting upon man through his environment rather than through man upon his environemnt.
    I fancy that this will be criticised as too general, and I am inclined to ac- cept the criticism. It manifestly includes all who have any title to be called Socialists, but possibly it does not exclude all who have no such title.
    Let us narrow it a little: Socialism is the belief that the next important step in progress is a change in man’s environment of an economic character that shall include the abolition of every privilege whereby the holder of wealth acquires an anti-social power to compel tribute.
    I doubt not that this definition can be much improved, and suggestions looking to that end will be interesting; but it is at least an attempt to cover all the forms of protest against the existing usurious economic system. I have al- ways considered myself a member of the great body of Socialists, and I object to being read out of it or defined out of it by General Walker, Mr. Pentecost, or anybody else, simply because I am not a follower of Karl Marx.
    Take now another Twentieth Century definition – that of Anarchism. I have not the number of the paper in which it was given, and cannot quote it exactly. But it certainly made belief in co-operation an essential of An- archism. This is as erroneous as the definition of Socialism. Co-operation is no more an essential of Anarchism than force is of Socialism. The fact that the majority of Anarchists believe in co-operation is not what makes them Anarchists, just as the fact that the majority of Socialists believe in force is not what makes them Socialists. Socialism is neither for nor against liberty; Anarchism is for liberty, and neither for nor against anything else. Anarchy is the mother of co-operation – yes, just as liberty is the mother of order; but, as a matter of definition, liberty is not order nor is Anarchism cooperation.
    I define Anarchism as the belief in the greatest amount of liberty com- patible with equality of liberty; or, in other words, as the belief in every liberty except the liberty to invade. [pg 93-4]

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