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December 19, 2006
Political economy of patent reform
There is an interesting new working paper out from Professor F. M. Scherer of Harvard - The Political Economy of Patent Policy Reform in the United States, published by the AEI-Brookings Joint Center for Regulatory Studies. Professor Scherer is a long time student of the economics of technological change, including intellectual property rights. The purpose of this most recent paper is to look at interesting questions:
the fact that governmental emphasis on patent systems increased in the wake of impressive new findings from economic studies showing that patents played a surprisingly minor role in well-established corporations' decisions to invest in research, development, and technological innovation.
The paper touches upon some of the other factors. These include first mover advantage, the ability to move quickly down the learning curve and superior sales or service efforts.
In looking at his central question, he also looks at the results of the current system, which he finds mixed:
While stronger patent protection per se should have increased the profitability of innovation and hence stimulated R&D expenditures, all else equal, the increased danger from infringing another firm's patents exerted an opposite negative influence.
. . .
the changes brought negative consequences along with the positive. In particular, by encouraging the proliferation of patents covering inventions of dubious novelty and increasing the statistical probability that knowing or inadvertent infringement of patents leads to dire consequences, it increased the risks as well as the rewards from inventive activity. It is far from clear that the positive effects outweigh the negatives. Fortunately, as economic studies have shown repeatedly, patents do not play a particularly important role in most fields of industrial innovation, and equally fortunately, those who advise industrial leaders in their journeys through the patent minefield are adept at negotiating solutions that in most instances avoid serious impediments to the pace of technological progress. It is nevertheless useful to assess the negatives and attempt to correct them through legislative or judicial action. In this, we would be emulating the example of one of the world's most famous inventors, James Watt, who observed "I have been trying experiments on the reciprocating engine, and have made some alterations for the better and some for the worse, which latter must return to their former form."
On the specifics of a reform agenda, there is nothing new in the paper. The changes in patent law he advocates are those coming from the various studies (FTC, National Academy, etc.) - which he cites. Rather, the power of the paper is in its background on the issue and its general framework. In that regard, I found one major weakness: the lack of discussion about the increased importance of patents to a company's secondary income flows. While patents many be less important than other factors for setting the direction and level of corporate R&D and for new product development strategies, they are increasingly important as a revenue stream. In this regard, the studies Scherer cites on the effects of patenting may be more relevant to understanding the past rather than guiding the future.
At another level, however, the paper has a strong message for how we approach the future. I think the Watt quote is especially telling. Our innovation infrastructure (of which our patents laws are a part) should be viewed as constantly evolving. Scherer subtly reminds us that social innovations are subject to the same Schumpeterian dynamics of creative destruction as other areas. It is all one big process of experimentation -- of learning by doing. He also reminds us of the need for empirical evidence as we review our policies. Let us keep that in mind as we move forward.
Posted by Ken Jarboe at December 19, 2006 8:41 AM
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