What Kind Of Progress Are We Promoting?

Studies

from the the-big-question dept

Continuing my series of posts exploring some of the basics of “intellectual property,” I wanted to discuss that key clause in the Constitution that I brought up in the first post in the series:

“The Congress shall have Power… To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;”

Unfortunately, many have interpreted this clause to mean that any such monopoly granted must “promote the progress of Science and useful Arts.” However, a much more reasonable reading of this clause — especially given Jefferson and Madison’s clearly stated concerns about it as they argued over whether or not to include it — is that these monopoly grants (whether copyright or patent) should only be considered Constitutional if they actually “promote the progress.” What Madison and Jefferson saw (which is all too often ignored these days) is that granting a monopoly has both negative impacts and positive impacts. If the positive impacts outweigh the negative, then you can say that the granted monopolies promote the progress. If it’s the other way around, however….

Now there are some who insist that there are no negative impacts of such monopolies, but that’s easily shown to be false. Clearly, by limiting the ability of everyone else to make use of the ideas or content, that’s a loss. The argument in favor of these monopolies is straightforward: that without the monopoly, there is little (or perhaps no) incentive for the creator to create the content or bring a product to market in the first place. Even for those who recognize the downsides to patents and copyright, many will argue that this particular benefit vastly outweighs the negatives. However, it would appear to be a more open question than many believe.

There are different parts to break out in examining the question of whether or not a patent or copyright actually “promotes the progress.” First, it’s weighing the negative impacts. To do that, you start out by determining the deadweight loss from the monopoly pricing that is enforced via the patent or copyright. This would be the higher price that can be charged for the good, thanks to the exclusivity granted by the government. The second, much more difficult to calculate, concept to figure out is whether (and to what degree) that exclusivity also slows down additional later improvements, which would, clearly, go against the concept of promoting the progress. This point is often ignored in discussions about patents, due to the fact that many look at an invention in a “static” world — where the invention (or new content) is the end of production. However, in a dynamic world, innovation is actually an ongoing process of experimenting and changing and tinkering. If each stage of that process is limited and blocked, then clearly it can slow down “the progress” by quite a bit. Third is to look at other costs, such as diverted resources to legal fees.

Of course, it’s important to look at the benefits side of the equation as well, and weigh them against the negatives. On that side, the question should be whether or not the content or invention would be created at all in the absence of the protection. To answer that question, what you really need to look at is whether or not there are alternative business models that would create an acceptable likelihood of return to still have the product created. If such models exist, then it would suggest that the “benefit” of the monopoly is somewhat limited. However, if such models do not exist, then you need to account for the loss associated with the invention or content never being created, including the further impacts down the line (if there were no steam engine, would there be no steamboats etc…). You can also look at whether or not such inventions or content would take longer to produce in the absence of protection, and account for how that might slow down the pace of innovation. When it comes to patents, there are also some who claim that another important benefit is “disclosure.” That is, a part of the bargain for getting the patent is that you need to disclose the details of the concept so that others can learn from it, and that disclosure should, in theory, create further innovations.

So what does the evidence show? I had been working out a list of all the research to include in this post when I saw that James Bessen and Michael J. Meurer had written up part of a summary of their new book, Patent Failures, which we had mentioned recently. The summary goes through much of the peer reviewed research that I had been planning to mention on the impact (good and bad) of patents, and reveals a rather consistent finding: there is almost no evidence that patents help promote the progress. Specifically:

“it is hard to find evidence suggesting patents are a major factor spurring R&D investment, that patents contribute to economic growth, or even that the patent system is a source of great wealth to important inventors and innovators.”

What they find, instead, is that whenever there’s a correlation between increased research and development and patents, it’s a reverse causality. That is, greater patent protection trails greater research and development. Greater patent protection, however, does not increase research and development. What that clearly suggests is that stronger patent systems are put in place after the research and development is done, in order to protect those who did the work against competition, not to spur further innovation. That may make the earlier inventors happy (it lets them rest on their laurels rather than continue to innovate), but it goes against the very purpose of the patent system, and results in an overall societal loss. This certainly isn’t a new finding, and much of the research discussed by Bessen and Meurer can also be found in David Levine and Michele Boldrin’s book Against Intellectual Monopoly.

This isn’t just the result of one study, either, but a number of different studies comparing a number of different things, both over different time periods, across different countries, different types of products and many other factors. And almost all of the research points in the same direction. There is little evidence that patents actually do what the Constitution says they must to remain Constitutional. There is, potentially, one exception. Bessen and Meurer do note that there is some evidence that patents do have an impact on R&D in the pharmaceutical business (on this Levine and Boldrin disagree with Bessen and Meurer). Indeed, there are some people who claim that a situation like pharmaceuticals is the one case of market failure where patents could make sense, since there’s a high capital expenditure requirement on the front end, and the barrier to copying is exceptionally low on the output. This post is long enough already, but there are reasons to even doubt that patents are necessary in pharmaceuticals as well (and actually many reasons to believe that they actively harm the market for health care). However, we’ll have to cover that another time.

In the meantime, the next post in the series will pick up on exactly why the negatives associated with patents seem to almost always outweigh the positives.

Links to other posts in the series:

• On The Constitutional Reasons Behind Copyright And Patents
• Patents, Copyrights And Trademarks, Oh My!
• If Intellectual Property Is Neither Intellectual, Nor Property, What Is It?
• What Kind Of Progress Are We Promoting?
• Why Do Patents Tend To Cause More Harm Than Good?
• The Case For And Against Software And Business Model Patents

Filed Under: copyrights, economics, patents, promote the progress, research