from the capture-and-expansion dept
The initial eruption of small and large innovations leading to the creation of a new industry -- from chemicals to cars, from radio and TV to personal computers and investment banking -- is seldom, if ever, born out of patent protection and is, instead, the fruits of highly competitive-cooperative environments. It is only after the initial stages of explosive innovation and rampant growth end that mature industries turn toward the legal protection of patents, usually because their internal grow potential diminishes and the industry structure become concentrated.The report does a good job highlighting how innovative firms and innovative industries almost never use patents (or use them sparingly). This should indicate that the basis of the patent system (that it's needed to encourage innovation) is shaky at best. But, they note that what little research there is on this tends to be ignored. They even highlight research that finds that IP strengthening almost always happens during times of "deregulation" where researchers (including Judge Richard Posner) struggle to figure out why that would be. Boldrin and Levine argue that the confusion here is mainly due to thinking of patents as "property" rather than as a monopoly restriction:
A closer look at the historical and international evidence suggests that while weak patent systems may mildly increase innovation with limited side-effects, strong patent systems retard innovation with many negative side-effects. Both theoretically and empirically, the political economy of government operated patent systems indicates that weak legislation will generally evolve into a strong protection and that the political demand for stronger patent protection comes from old and stagnant industries and firms, not from new and innovative ones. Hence the best solution is to abolish patents entirely through strong constitutional measures and to find other legislative instruments, less open to lobbying and rent-seeking, to foster innovation whenever there is clear evidence that laissez-faire under-supplies it.
In fact, neither Landes and Posner nor, apparently, most industrial organization researchers, seem interested in figuring out why patents are either ignored or scarcely used in new and competitive industries while being highly valued and over-used in mature and highly concentrated ones. The point here seems to be that, being themselves strong advocates of the usefullness of patents in fostering innovations, the authors fail to recognize the intrinsic problem with the design of the institution itself. Being not a “property” right but rather a “monopoly” right, patent possessors will automatically leverage whatever initial rents their monopoly provides them with in order to increase their monopoly power until all potential rents are extracted and, probably, dissipated by the associated lobbying and transaction costs.Boldrin and Levine also hit back at the charge that abolition of the patent system is too extreme given that it already exists. They note that other bad laws of a similar nature have been ditched as well:
Economists fought for decades – and ultimately with great success – to abolish trade restrictions. It will not escape the careful reader that patents are very much akin to trade restrictions as they prevent the free entry of competitors in national markets, thereby reducing the growth of productive capacity and slowing down economic growth. The same way that trade restrictions were progressively reduced until reaching (almost complete) abolition, a similar (albeit, hopefully less slow) approach should be adopted to “get rid” of patents. Moreover the nature of patents as time-limited makes it relatively easy to phase them out by phasing in ever shorter patent durations. This conservative approach has also the advantage that if reducing patent terms indeed has a catastrophic effect on innovation the process can easily be reversed.They admit that the poster child for the patent system, the pharma industry, may have to face the biggest changes, but also suggest that there are plenty of ways to still create the necessary incentives, including both lowering the costs of clinical trials and using prizes to award key drug treatment developments.
It's an interesting read. I will admit that I'm not fully convinced that the argument makes sense -- but I find the argument a lot more persuasive than most others I've seen.