Thursday, August 8, 2013

Patent Wars: Episode III- Laissez-faire Strikes Back

Patent Wars: Episode III- Laissez-faire Strikes Back


Michele Boldrin and David K. Levine of the Federal Reserve Bank of St. Louis, Research Division, last fall published a "working paper" entitled, "The Case Against Patents."  These authors "make a case" that market forces (e.g. lead time/ being the first one to the market) and less government involvement are the keys to innovation and economic development, not a strong patent system.

The opening paragraph of the working paper states,


The case against patents can be summarized briefly: there is no empirical evidence that they serve to increase innovation and productivity, unless the latter is identified with the number of patents awarded– which, as evidence shows, has no correlation with measured productivity.  This is at the root of the “patent puzzle”: in spite of the enormous increase in the number of patents and in the strength of their legal protection we have neither seen a dramatic acceleration in the rate of technological progress nor a major increase in the levels of R & D expenditure...


...there is strong evidence, instead, that patents have many negative consequences. Both of these observations, the evidence in support of which has grown steadily over time, are consistent with theories of innovation that emphasize competition and first-mover advantage as the main drivers of innovation and directly contradict  Schumpeterian” theories postulating that government granted monopolies are crucial in order to provide incentives for innovation....

...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.
Are Boldrin and Levine correct?  Are patents more a hindrance to innovation and economic development than an aid?  Was Thomas Jefferson wrong when he drafted the U.S. Constitution, Article I, § 8, clause 8), giving Congress the power to "promote the useful arts" (i.e. inventions) "by securing for limited Times to ... Inventors the exclusive Right to their respective ... Discoveries?
Is it laissez-faire time?


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