Well, that is the opinion of Michele Boldrin and David K. Levine, two economists working for the St. Louis Federal Reserve, and long time patent antagonists. IntellectualIP has discussed Boldrin and Levine’s work twice before. (1, 2) They have recently authored a paper and a book on the subject where they advocate for abolishing the patent system. As a patent attorney, it would be easy to turn the question around and ask what good are economists? After all, they completely failed to predict the worst financial crisis since the Great Depression, and once it occurred could not agree on what to do about it. But, I guess that is beside the point.
The paper, while citing a number of supporting studies (many of which are the authors own work), seems to rely largely on anecdote and unsupported conclusory statements. For example, they cite to the negative effect of patents in complex, computer-related technology as a hold-up cost to competitors by requiring developers to pay separate license fees for the countless features of mobile phones (for example). I suppose this is true – patents do make competition more costly – but without them innovation becomes a suckers game. Who is going to want to take on the burdens of innovating if the innovation instantly becomes a commodity?
They then cite to what they call the “actual” “real-world” effect of patents, which is to serve as a blocking tool. Large companies like Google, they state, merely acquire patents to make it dangerous for competitors to sue them. They cite no evidence that this is the actual or dominate use of patents in the real world. Based on my experience, patents are obtained by people who are offering actual goods and services embodying the patented invention.
In any event, the authors conclude therefore that patents are useless because all they are used for is to prevent companies from suing each other, which is exactly what would happen if there were no patents at all. Thus, patents result in nothing but “wasteful legal costs and no social benefit whatsoever.” Wasteful Legal Cost? Lawyers (and people who work for law firms) have to eat too! I asked around the office and everyone I asked viewed their paycheck as a “social benefit.”
Seriously, it is highly doubtful that blocking is the dominant use of patents, or that it does not produce a benefit (Google presumably believes the money they “waste” on obtaining patents is worth more than what they would “waste” defending lawsuits that would happen if they did not have the patents). It is self-evident that if there are no patents there would be no patent litigation, but it is also true that there would not be much incentive to innovate.
Next, the authors address the information-disclosure benefit of patents. First, they state (without any support) that the usefulness of the disclosure in a modern patent to innovators is as negligible as the skills of patent attorneys can make it. Huh . . . I am not sure if that is a complement or not? Again, from my experience this is not the case. It is common for a patent attorney to forward prior art (for example art cited in an office action) to their inventor clients to have the client explain it to the attorney. This would not be the case if the disclosures were decipherable only to a patent attorney. They then state that it is usually impossible to build a functioning device from a patent disclosure, and cite to U.S. Patent no. 6,025,810 for support, which covers moving information through the fifth dimension – as if this one patent is a typical example of over 8,000,000 patents.
I do believe that there is a point in the authors’ favor to be made here. The information disclosure benefits of the patent system are limited, but not for the reasons cited by the authors. In many cases, the information contained in patents gets in the public domain before the patent become publically available. Patents disclosures are not publically available for 18 months. If the product is in marketplace before publication, and like many products can be reverse engineered, the patent disclosure comes too late to advance the state of knowledge.
Part of the problem with patents as disclosures is that until fairly recently there have not been good mechanism for the public to search and access patents. This is no longer the case with the introduction of tools like Google’s patent search feature and other patent analytical programs. We may see a greater benefit now that patents are more widely available, and can be analyzed more efficiently.
Finally, they address the issue of patents as an incentive to innovate. Of course, the authors are not impressed. They refer to Apple’s success in the iPhone and iPad markets, and they attribute the delay in serious competition to Apple’s first to market advantage and not to patents. They state that “[w]hile it is hard to prove this delayed imitation also would have occurred in the complete absence of patents, intuition suggests . . . that there is little reason to assert patent rights while the first-mover advantage is still active.” Very little reason, indeed – and it has nothing to do with intuition. Apple did not have any patents to assert during the first-mover period, they were pending in the PTO, but once they did (as Samsung found out) Apple did not hesitate to assert them. Furthermore, it is reasonable to assume that part of the delay in imitation was due to the fact that Apple’s competitors certainly knew patents were coming and proceeded with more caution than they would have otherwise.
The issue is not just what role do patents play in the initial success of a product – which is mitigated by the fact that patents will not issue until years after a product hits the market – but what would companies, like Apple, do if patent protection was not available at all. Would they have the same motive to invest in innovation, or would they wait to free-ride on the innovations of others?
I doubt anyone can definitively answer these questions, and they raise issues well beyond the scope of economics. It is clear that patents do create both incentives for innovation as well as entry barriers. Simply abolishing the patent systems certainly has to be the wrong way to deal with this circumstance. Especially, at expense of leaving the U.S. without any protection while the rest of the world is protected.