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The Case Against Patents

The Case Against Patents

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Published by Mises Fan



Two economists at the St. Louis Federal Reserve published this paper arguing to abolish the American patent system, saying there's "no evidence" patents improve productivity and that they have a "negative" effect on "innovation."



The research suggests that President Barack Obama's 2011 patent reform legislation -- one of only a handful of major bills to clear Congress with bipartisan support in recent years -- was wrong-headed.



Patents are designed to encourage innovation by granting inventors long-term monopolies on new products. In recent years, however, several innovators in high-tech sectors have complained that the large volume of vague patents has become a major barrier to innovation. When start-ups attempt to unveil a new product, they risk violating a broad, obscure patent.



"Our preferred policy solution is to abolish patents entirely," the paper's authors, economists Michele Boldrin and David K. Levine, wrote. They conclude that problems with patents in fact run much deeper than many critics of the recent system have emphasized.



"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," Boldrin and Levine wrote. "More generally, the initial eruption of innovations leading to the creation of a new industry—from chemicals to cars, from radio and television to personal computers and investment banking—is seldom, if ever, born out of patent protection and is instead the fruit of a competitive environment."



The paper also argues that the patent system is damaging public health by raising the cost of prescription drugs, while failing to generate a plethora of innovative new treatments for life-saving diseases.



"Rather than just ratcheting up patent protection, there are a number of moves we could make to reduce the risks and cost of developing new drugs," Boldrin and Levine wrote.



Those approaches were not taken by the 2011 patent reform bill. Rather than decrease the overall patent load, the legislation sought to expedite the process and provide more safeguards against awarding low-quality patents. In September, the Obama administration commemorated the first anniversary of its patent reform bill with a blog post boasting of a faster, streamlined patent approval system.



"The U.S. Patent and Trademark Office is implementing the legislation in a manner that makes it easier for American entrepreneurs and businesses to bring their inventions to the marketplace sooner, converting their ideas into new products and new jobs," the post reads. "It will help companies and inventors avoid costly delays and unnecessary litigation, and let them focus instead on innovation and job creation."



The White House did not immediately respond to a request for comment on the paper.



But the problem of patent lawsuits has not been mitigated by the law. Since its passage, large tech companies have embroiled themselves in high-profile cases claiming patent infringement for everything from rounded corners to double-tapping a smartphone screen.



Hoping to improve patent quality, Boldrin and Levine say, is a lost cause.



"Why use band-aids to staunch a major wound?" Boldrin and Levine wrote. "Economists fought for decades -- ultimately with considerable success -- to reduce restrictions on international trade. A s



Two economists at the St. Louis Federal Reserve published this paper arguing to abolish the American patent system, saying there's "no evidence" patents improve productivity and that they have a "negative" effect on "innovation."



The research suggests that President Barack Obama's 2011 patent reform legislation -- one of only a handful of major bills to clear Congress with bipartisan support in recent years -- was wrong-headed.



Patents are designed to encourage innovation by granting inventors long-term monopolies on new products. In recent years, however, several innovators in high-tech sectors have complained that the large volume of vague patents has become a major barrier to innovation. When start-ups attempt to unveil a new product, they risk violating a broad, obscure patent.



"Our preferred policy solution is to abolish patents entirely," the paper's authors, economists Michele Boldrin and David K. Levine, wrote. They conclude that problems with patents in fact run much deeper than many critics of the recent system have emphasized.



"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," Boldrin and Levine wrote. "More generally, the initial eruption of innovations leading to the creation of a new industry—from chemicals to cars, from radio and television to personal computers and investment banking—is seldom, if ever, born out of patent protection and is instead the fruit of a competitive environment."



The paper also argues that the patent system is damaging public health by raising the cost of prescription drugs, while failing to generate a plethora of innovative new treatments for life-saving diseases.



"Rather than just ratcheting up patent protection, there are a number of moves we could make to reduce the risks and cost of developing new drugs," Boldrin and Levine wrote.



Those approaches were not taken by the 2011 patent reform bill. Rather than decrease the overall patent load, the legislation sought to expedite the process and provide more safeguards against awarding low-quality patents. In September, the Obama administration commemorated the first anniversary of its patent reform bill with a blog post boasting of a faster, streamlined patent approval system.



"The U.S. Patent and Trademark Office is implementing the legislation in a manner that makes it easier for American entrepreneurs and businesses to bring their inventions to the marketplace sooner, converting their ideas into new products and new jobs," the post reads. "It will help companies and inventors avoid costly delays and unnecessary litigation, and let them focus instead on innovation and job creation."



The White House did not immediately respond to a request for comment on the paper.



But the problem of patent lawsuits has not been mitigated by the law. Since its passage, large tech companies have embroiled themselves in high-profile cases claiming patent infringement for everything from rounded corners to double-tapping a smartphone screen.



Hoping to improve patent quality, Boldrin and Levine say, is a lost cause.



"Why use band-aids to staunch a major wound?" Boldrin and Levine wrote. "Economists fought for decades -- ultimately with considerable success -- to reduce restrictions on international trade. A s

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 Journal of Economic Perspectives—Volume 27, Number 1—Winter 2013—Pages 3–22 
T
T
he case against patents can be summarized briefy: there is no empirical
he case against patents can be summarized briefy: there is no empirical
evidence that they serve to increase innovation and productivity, unless
evidence that they serve to increase innovation and productivity, unless
productivity is identied with the number o patents awarded—which, as
productivity is identied with the number o patents awarded—which, as
evidence shows, has no correlation with measured productivity. This disconnect is
evidence shows, has no correlation with measured productivity. This disconnect is
at the root o what is called the “patent puzzle”: in spite o the enormous increase in
at the root o what is called the “patent puzzle”: in spite o the enormous increase in
the number o patents and in the strength o their legal protection, the US economy
the number o patents and in the strength o their legal protection, the US economy 
has seen neither a dramatic acceleration in the rate o technological progress nor a
has seen neither a dramatic acceleration in the rate o technological progress nor a
major increase in the levels o research and development expenditure.
major increase in the levels o research and development expenditure.
Both theory and evidence suggest that while patents can have a partial equi-
Both theory and evidence suggest that while patents can have a partial equi-
librium eect o improving incentives to invent, the general equilibrium eect on
librium eect o improving incentives to invent, the general equilibrium eect on
innovation can be negative. The historical and international evidence suggests that
innovation can be negative. The historical and international evidence suggests that 
while weak patent systems may mildly increase innovation with limited side eects,
 while weak patent systems may mildly increase innovation with limited side eects,
strong patent systems retard innovation with many negative side eects. More gener-
strong patent systems retard innovation with many negative side eects. More gener-
ally, the initial eruption o innovations leading to the creation o a new industry—rom
ally, the initial eruption o innovations leading to the creation o a new industry—rom
chemicals to cars, rom radio and television to personal computers and investment
chemicals to cars, rom radio and television to personal computers and investment 
banking—is seldom, i ever, born out o patent protection and is instead the ruit o a
banking—is seldom, i ever, born out o patent protection and is instead the ruit o a
competitive environment. It is only ater the initial stage o rampant growth ends that
competitive environment. It is only ater the initial stage o rampant growth ends that 
mature industries turn toward the legal protection o patents, usually because their
mature industries turn toward the legal protection o patents, usually because their
internal growth potential diminishes and they become more concentrated. These
internal growth potential diminishes and they become more concentrated. These
observations, supported by a steadily increasing body o evidence, are consistent with
observations, supported by a steadily increasing body o evidence, are consistent with
The Case Against Patents
Michele Boldrin is Joseph Gibson Hoyt Distinguished University Professor of Economics and
Michele Boldrin is Joseph Gibson Hoyt Distinguished University Professor of Economics and 
David K. Levine is John H. Biggs Distinguished University Professor of Economics, both at
 David K. Levine is John H. Biggs Distinguished University Professor of Economics, both at 
Washington University in St. Louis, Missouri. They are also both Research Fellows with the
Washington University in St. Louis, Missouri. They are also both Research Fellows with the 
Federal Reserve Bank of St. Louis. Their email addresses are mboldrin@artsci.wustl.edu and
 Federal Reserve Bank of St. Louis. Their email addresses are mboldrin@artsci.wustl.edu and 
david@dklevine.com.
david@dklevine.com.
http://dx.doi.org/10.1257/jep.27.1.3. doi=10.1257/jep.27.1.3
Michele Boldrin and David K. Levine
 
4 Journal of Economic Perspectives 
theories o innovation emphasizing competition and rst-mover advantage as the
theories o innovation emphasizing competition and rst-mover advantage as the
main drivers o innovation, and they directly contradict “Schumpeterian” theories
main drivers o innovation, and they directly contradict “Schumpeterian” theories
postulating that government-granted monopolies are crucial to provide incentives
postulating that government-granted monopolies are crucial to provide incentives
or innovation. A properly designed patent system might serve to increase innovation
or innovation. A properly designed patent system might serve to increase innovation
at a certain time and place and some patent systems, such as the late-nineteenth
at a certain time and place and some patent systems, such as the late-nineteenth
century German system allowing only process but not nal product patents, have
century German system allowing only process but not nal product patents, have
been associated with rapid innovation. Unortunately, the political economy o
been associated with rapid innovation. Unortunately, the political economy o 
government-operated patent systems indicates that such systems are susceptible to
government-operated patent systems indicates that such systems are susceptible to
pressures that cause the ill eects o patents to grow over time. The political economy
pressures that cause the ill eects o patents to grow over time. The political economy 
pressures tend to benet those who own patents and are in a good position to lobby
pressures tend to benet those who own patents and are in a good position to lobby 
or stronger patent protection, but disadvantage current and uture innovators as
or stronger patent protection, but disadvantage current and uture innovators as
well as ultimate consumers. This explains why the political demand or stronger
 well as ultimate consumers. This explains why the political demand or stronger
patent protection comes rom old and stagnant industries and rms, not rom new
patent protection comes rom old and stagnant industries and rms, not rom new 
and innovative ones. Our preerred policy solution is to abolish patents entirely and
and innovative ones. Our preerred policy solution is to abolish patents entirely and
to nd other legislative instruments, less open to lobbying and rent seeking, to oster
to nd other legislative instruments, less open to lobbying and rent seeking, to oster
innovation when there is clear evidence that laissez-aire undersupplies it. However,
innovation when there is clear evidence that laissez-aire undersupplies it. However,
i that policy change seems too large to swallow, we discuss in the conclusion a set
i that policy change seems too large to swallow, we discuss in the conclusion a set 
o partial reorms that could be implemented as part o an incremental strategy o
o partial reorms that could be implemented as part o an incremental strategy o 
reducing the harm done by the patent system.
reducing the harm done by the patent system.
Do Patents Encourage Productivity Growth?
I there is to be any rationale or patent systems, with all their ancillary costs, it
I there is to be any rationale or patent systems, with all their ancillary costs, it 
must be that they increase innovation and productivity. What is the evidence?
must be that they increase innovation and productivity. What is the evidence?
Simply eyeballing the big trends shows that patenting has exploded over the
Simply eyeballing the big trends shows that patenting has exploded over the
last decades. In 1983 in the United States, 59,715 patents were issued; by 2003,
last decades. In 1983 in the United States, 59,715 patents were issued; by 2003,
189,597 patents were issued; and in 2010, 244,341 new patents were approved. In
189,597 patents were issued; and in 2010, 244,341 new patents were approved. In
less than 30 years, the fow o patents more than quadrupled. By contrast, neither
less than 30 years, the fow o patents more than quadrupled. By contrast, neither
innovation nor research and development expenditure nor actor productivity
innovation nor research and development expenditure nor actor productivity 
have exhibited any particular upward trend. According to the Bureau o Labor
have exhibited any particular upward trend. According to the Bureau o Labor
Statistics, annual growth in total actor productivity in the decade 1970 –1979 was
Statistics, annual growth in total actor productivity in the decade 1970 –1979 was
about 1.2 percent, while in the decades 1990 –1999 and 2000 –2009 it has been a bit
about 1.2 percent, while in the decades 1990 –1999 and 2000 –2009 it has been a bit 
below 1 percent. Meanwhile, US research and development expenditure has been
below 1 percent. Meanwhile, US research and development expenditure has been
oscillating or more than three decades in a narrow band around 2.5 percent o
oscillating or more than three decades in a narrow band around 2.5 percent o 
GDP. The recent explosion o patents, in other words, has not brought about any
GDP. The recent explosion o patents, in other words, has not brought about any 
additional surge in useul innovations and aggregate productivity. In new industries
additional surge in useul innovations and aggregate productivity. In new industries
such as biotechnology and sotware —where innovation was already thriving in their
such as biotechnology and sotware —where innovation was already thriving in their
absence —patents have been introduced without any positive impact on the rate
absence —patents have been introduced without any positive impact on the rate
o innovation. The sotware industry is an important case in point. In a dramatic
o innovation. The sotware industry is an important case in point. In a dramatic
example o judge-made law, sotware patents became possible or the rst time in
example o judge-made law, sotware patents became possible or the rst time in
the early 1990s. Bessen and Meurer, in a large body o empirical work culminating
the early 1990s. Bessen and Meurer, in a large body o empirical work culminating
in
in
Patent Failure 
(2008), have studied the consequences o this experiment and have
(2008), have studied the consequences o this experiment and have
concluded that it damaged social welare.
concluded that it damaged social welare.
 
Miche le Boldrin and David K. Levine
Academic studies have also typically ailed to nd much o a connection
 Academic studies have also typically ailed to nd much o a connection
between patents and innovation. In Boldrin and Levine (2008b), we conducted
between patents and innovation. In Boldrin and Levine (2008b), we conducted
a metastudy gathering the 24 studies (including three surveys o earlier empirical
a metastudy gathering the 24 studies (including three surveys o earlier empirical
work) we could nd in 2006 that examined whether introducing or strengthening
 work) we could nd in 2006 that examined whether introducing or strengthening
patent protection leads to greater innovation. The executive summary states:
patent protection leads to greater innovation. The executive summary states:
“[T]hese studies nd weak or no evidence that strengthening patent regimes
“[T]hese studies nd weak or no evidence that strengthening patent regimes
increases innovation; they nd evidence that strengthening the patent regime
increases innovation; they nd evidence that strengthening the patent regime
increases patenting! They also nd evidence that, in countries with initially weak
increases patenting! They also nd evidence that, in countries with initially weak
IP [intellectual property] regimes, strengthening IP increases the fow o oreign
IP [intellectual property] regimes, strengthening IP increases the fow o oreign
investment in sectors where patents are requently used.” Actually, the issue o
investment in sectors where patents are requently used.” Actually, the issue o 
promoting oreign direct investment, while a well-established empirical conse-
promoting oreign direct investment, while a well-established empirical conse-
quence o strengthening patent regimes, is entirely beside the point o this essay.
quence o strengthening patent regimes, is entirely beside the point o this essay.
There are a number o ways to strengthen a country’s institutions and inrastruc-
There are a number o ways to strengthen a country’s institutions and inrastruc-
ture in a way that would encourage oreign direct investment—and, in any case,
ture in a way that would encourage oreign direct investment—and, in any case,
oreign direct investment is not equivalent to innovation.
oreign direct investment is not equivalent to innovation.
Our conclusion was in keeping with other studies that have addressed this ques-
Our conclusion was in keeping with other studies that have addressed this ques-
tion. Some studies have ailed to nd any connection even between changes in
tion. Some studies have ailed to nd any connection even between changes in
the strength o patent law and the amount o patenting, while others ail to nd a
the strength o patent law and the amount o patenting, while others ail to nd a
connection between patents and some measure o innovation or productivity. For
connection between patents and some measure o innovation or productivity. For
example, ater ailing to nd a single study claiming that innovation increased as
example, ater ailing to nd a single study claiming that innovation increased as
a consequence o the strengthening o US patent protection in the 1980s, Gallini
a consequence o the strengthening o US patent protection in the 1980s, Gallini
(2002, p. 139) wrote in this journal: “Although it seems plausible that the strength-
(2002, p. 139) wrote in this journal: “Although it seems plausible that the strength-
ening o US patents may have contributed to the rise in patenting over the past
ening o US patents may have contributed to the rise in patenting over the past 
decade and a hal, the connection has proven dicult to veriy.”
decade and a hal, the connection has proven dicult to veriy.”
 
Similarly, Jae
Similarly, Jae
(2000) also examines many studies and concludes: “[D]espite the signicance o
(2000) also examines many studies and concludes: “[D]espite the signicance o 
the policy changes and the wide availability o detailed data relating to patenting,
the policy changes and the wide availability o detailed data relating to patenting,
robust conclusions regarding the empirical consequences or technological innova-
robust conclusions regarding the empirical consequences or technological innova-
tions o changes in patent policy are ew. There is widespread unease that the costs
tions o changes in patent policy are ew. There is widespread unease that the costs
o stronger patent protection may exceed the benets. Both theoretical and, to a
o stronger patent protection may exceed the benets. Both theoretical and, to a
lesser extent, empirical research suggest this possibility.” 
lesser extent, empirical research suggest this possibility.” 
1
1
1
The study by Kanwar and Evanson (2001) illustrates some o the issues that arise in these kinds o studies.They have two ve-year averages on 31 countries or the period 1981–1990. They nd support or the ideathat higher patent protection leads to higher research and development spending as a raction o GDP.However, a dierent story seems equally plausible. Countries with a larger market can more easily pay thexed costs o innovation. Indeed, one perspective is that their data essentially compares countries withrelatively small economies, little intellectual property protection, and low R&D spending with countries with relatively larger economies, greater intellectual property protection, and higher R&D spending. Forexample, R&D spending as a raction o GDP in their data ranges rom a ten-year average o 0.2 percent in Jordan to 2.8 percent in Sweden. I we combine their data with GDP data rom
The 1990 CIA World Fact Book 
 to take account o the size o the economy, increasing the strength o intellectual property protection rom0 to 1 to 2 on their ve-point scale does increase R&D expenditure. But as intellectual property protectionis increased urther, the gains to R&D expenditure levels then alls. Even at the lower levels, we are probably observing primarily the eect o oreign direct investment: that is, among poor countries with near-zerointellectual property protection, increases bring in more oreign investment and in doing so directly raiseR&D spending. In higher-income countries with larger economies, oreign investment is not an issue, andincreases in intellectual property have little or no eect on innovation.

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