The Case Against Patents Journal of Economic Perspectives—Volume 27, Number 1—Winter 2013—Pages 3–22 TT he case against patents can be summarized briefl y: there is no empirical he case against patents can be summarized briefl y: 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 identifi ed with the number of patents awarded—which, as productivity is identifi ed with the number of 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 of what is called the “patent puzzle”: in spite of the enormous increase in at the root of what is called the “patent puzzle”: in spite of the enormous increase in the number of patents and in the strength of their legal protection, the US economy the number of patents and in the strength of their legal protection, the US economy has seen neither a dramatic acceleration in the rate of technological progress nor a has seen neither a dramatic acceleration in the rate of technological progress nor a major increase in the levels of research and development expenditure.major increase in the levels of 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 effect of improving incentives to invent, the general equilibrium effect on librium effect of improving incentives to invent, the general equilibrium effect 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 effects, while weak patent systems may mildly increase innovation with limited side effects, strong patent systems retard innovation with many negative side effects. More gener-strong patent systems retard innovation with many negative side effects. More gener- ally, the initial eruption of innovations leading to the creation of a new industry—from ally, 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 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 banking—is seldom, if ever, born out of patent protection and is instead the fruit of a competitive environment. It is only after the initial stage of rampant growth ends that competitive environment. It is only after the initial stage of rampant growth ends that mature industries turn toward the legal protection of patents, usually because their mature industries turn toward the legal protection of 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 of evidence, are consistent with observations, supported by a steadily increasing body of 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
[email protected] and Federal Reserve Bank of St. Louis. Their email addresses are
[email protected] and
[email protected]@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 of innovation emphasizing competition and fi rst-mover advantage as the theories of innovation emphasizing competition and fi rst-mover advantage as the main drivers of innovation, and they directly contradict “Schumpeterian” theories main drivers of 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 for innovation. A properly designed patent system might serve to increase innovation for 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 fi nal product patents, have century German system allowing only process but not fi nal product patents, have been associated with rapid innovation. Unfortunately, the political economy of been associated with rapid innovation. Unfortunately, the political economy of 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 effects of patents to grow over time. The political economy pressures that cause the ill effects of patents to grow over time. The political economy pressures tend to benefi t those who own patents and are in a good position to lobby pressures tend to benefi t those who own patents and are in a good position to lobby for stronger patent protection, but disadvantage current and future innovators as for stronger patent protection, but disadvantage current and future innovators as well as ultimate consumers. This explains why the political demand for stronger well as ultimate consumers. This explains why the political demand for stronger patent protection comes from old and stagnant industries and fi rms, not from new patent protection comes from old and stagnant industries and fi rms, not from new and innovative ones. Our preferred policy solution is to abolish patents entirely and and innovative ones. Our preferred policy solution is to abolish patents entirely and to fi nd other legislative instruments, less open to lobbying and rent seeking, to foster to fi nd other legislative instruments, less open to lobbying and rent seeking, to foster innovation when there is clear evidence that laissez-faire undersupplies it. However, innovation when there is clear evidence that laissez-faire undersupplies it. However, if that policy change seems too large to swallow, we discuss in the conclusion a set if that policy change seems too large to swallow, we discuss in the conclusion a set of partial reforms that could be implemented as part of an incremental strategy of of partial reforms that could be implemented as part of an incremental strategy of reducing the harm done by the patent system.reducing the harm done by the patent system. Do Patents Encourage Productivity Growth? If there is to be any rationale for patent systems, with all their ancillary costs, it If there is to be any rationale for 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 fl ow of patents more than quadrupled. By contrast, neither less than 30 years, the fl ow of patents more than quadrupled. By contrast, neither innovation nor research and development expenditure nor factor productivity innovation nor research and development expenditure nor factor productivity have exhibited any particular upward trend. According to the Bureau of Labor have exhibited any particular upward trend. According to the Bureau of Labor Statistics, annual growth in total factor productivity in the decade 1970 –1979 was Statistics, annual growth in total factor 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 for more than three decades in a narrow band around 2.5 percent of oscillating for more than three decades in a narrow band around 2.5 percent of GDP. The recent explosion of patents, in other words, has not brought about any GDP. The recent explosion of patents, in other words, has not brought about any additional surge in useful innovations and aggregate productivity. In new industries additional surge in useful innovations and aggregate productivity. In new industries such as biotechnology and software —where innovation was already thriving in their such as biotechnology and software —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 of innovation. The software industry is an important case in point. In a dramatic of innovation. The software industry is an important case in point. In a dramatic example of judge-made law, software patents became possible for the fi rst time in example of judge-made law, software patents became possible for the fi rst time in the early 1990s. Bessen and Meurer, in a large body of empirical work culminating the early 1990s. Bessen and Meurer, in a large body of empirical work culminating in in Patent Failure (2008), have studied the consequences of this experiment and have (2008), have studied the consequences of this experiment and have concluded that it damaged social welfare.concluded that it damaged social welfare. Miche le Boldrin and David K. Levine 5 Academic studies have also typically failed to fi nd much of a connection Academic studies have also typically failed to fi nd much of 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 of earlier empirical a metastudy gathering the 24 studies (including three surveys of earlier empirical work) we could fi nd in 2006 that examined whether introducing or strengthening work) we could fi nd in 2006 that examined whether introducing or strengthening patent protection