Do Patents Stimulate R&D Investment and Promote Growth?

James Bessen and Michael J. Meurer have authored a new book presenting a careful empirical analysis of whether patent rights encourage innovation. Their conclusion: for the most part, today’s patent system does not achieve its stated goal. I asked them to provide Patently-O readers with a cut from their analysis. The following post is the first in a series of four by the authors. The book is titled: Patent Failure and published by Princeton [Web Link]. The analysis done in this book put Bessen and Meurer at the forefront of leaders in economic analysis of patent laws. I suspect that their results will become the talking points of the next round of patent reform discussions. A live symposium will be held at UGA Law School on March 29 focusing on the book and its results. [LINK]

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by James Bessen and Michael J. Meurer

As background material, this post reviews the sizable body of empirical research analyzing the impact of patents on R&D investment and economic growth. Three future posts will present new empirical research featured in our book Patent Failure. The theme across all four posts is that patents often fail to perform effectively as property rights. [DDC: To work well as property, the right should be predictably valid; have discernible boundaries; and not have an overly fragmented ownership scheme.]

Economists cherish property rights that provide strong incentives for investment and trade, and that thereby contribute to economic growth. Potentially, patent rights could accomplish these three goals, and surely they sometimes do. Apparently though, it is hard to set up and maintain a patent system that works as property.

The rise of new market economies and strengthening of property rights around the globe in the last two decades provides economists with “natural experiments” that help us evaluate whether and how much property rights contribute to investment and growth. The empirical results are impressive. Countries that expanded the role of markets and strengthened property rights have prospered from these choices. Economic historians find the same results hold going back to the Industrial Revolution.

Comparable studies of patent systems are discouraging. The evidence certainly is consistent with the notion that patents encourage American pharmaceutical R&D. But otherwise, it is hard to find evidence suggesting patents are a major factor spurring R&D investment, that patents contribute to economic growth, or even that the patent system is a source of great wealth to important inventors and innovators (outside of a few industries like pharmaceuticals).

Economic history. Douglass North casually links patents and property rights and attributes a significant role to patents in the British Industrial Revolution. But many other economic historians are skeptical. Relatively few English inventors of key technologies prior to the mid-nineteenth century seemed to benefit from patents. Christine MacLeod finds that about nine out of ten English patents arose in industries that saw little innovation, and that patenting was at best loosely related to technological innovation. And Petra Moser, using information on inventions exhibited at the 1851 Crystal Palace Worlds Fair, finds that only 11% of British inventions were patented. [RESEARCH CITES AVAILABLE HERE]

Patents played a more significant role in the nineteenth century U.S. economy. Zorina Khan speaks of a “democratization of invention” in America. Individual mechanics and farmers obtained patents in large numbers and an active market for patents developed that lasted until the end of the century.

Institutional differences probably explain much of the disparity between the countries. British patents were not examined, but American patent examination started in 1836. Patent enforcement was costly and uncertain in England while in the U.S. patent fees were quite low, and a cadre of patent agents and lawyers supported a sector of professional inventors.

Cross-country studies. Park and Ginarte conducted a cross-national analysis of economic growth that included measures of general property rights and a measure of the strength of a country’s patent rights. They find that general property rights have a positive and statistically significant effect on economic growth but the patent index has a negative coefficient that is not statistically different from zero. However, they do find limited evidence that patent rights are correlated with a country’s R&D spending at least in wealthier countries.

Beware though, correlation is not causation. Patents might cause R&D investment and growth, or it might be, instead, that successful technology companies or other groups, such as the patent bar, have lobbied for patent protection. In this latter case, economic success promotes the expansion of the patent system, not the other way around. In a separate paper the same authors look at the factors that determine a country’s patent index. They find, in fact, that lagged R&D (R&D from five years earlier) is positively correlated with subsequent intellectual property rights strength. This suggests that there is, indeed, a significant reverse causality.

“Natural experiments.” Several researchers have analyzed changes in patent law. Sakakibara and Branstetter look at the effect of a 1988 law that strengthened patents in Japan. They found no evidence of an increase in either R&D spending or innovative output which could be plausibly attributed to the patent reform. Bessen and Hunt look at the effect of changes in the US treatment of inventions that involve software. They found that the number of software patents grew dramatically. However, firms in the software industry acquired relatively few patents; instead, most were obtained by firms in electronics and computer industries known for stockpiling large arsenals of patents to use as bargaining chips. Moreover, the firms that acquired relatively more software patents tended to actually reduce their level of R&D spending relative to sales.

A massive study by Josh Lerner looks at 177 changes that strengthened patent law in a panel of 60 countries over 150 years. Lerner is not able to directly measure the effect of these changes on innovation. Instead, he measures their effect on patenting within the country making the change and also the effect on patenting by domestic inventors at Great Britain’s Patent Office. He finds that overall foreign inventors increased their patenting in countries that strengthened their patent laws. However, domestic inventors actually patented at a lower rate after the change, both within their country and at the British Patent Office. Why the decline in English patents? Probably because there was less invention after patents were strengthened.

Exclusionary Power of Patents. Not surprisingly, the bright spot for patent performance is the pharmaceutical industry. Grabowski and Vernon shows that patents deliver value to drug pioneers by supporting high drug prices. They find that prices drop to 37% of their original level two years after the entry of generic manufacturers. The higher prices that pharmaceutical firms charge while they are still on patent allow them to earn above-normal profits, and more than recover their development investments.

But the pharmaceutical industry is not typical. Survey respondents told Mansfield (1981) et al. that patents increased imitation costs only 7% at the median for electronics and machinery inventions; the figure was 30% for pharmaceutical inventions.

Surveys also find that in most industries (pharmaceuticals are the exception!) R&D managers report that lead time, goodwill, trade secrecy and other means of appropriation are more effective than patents in obtaining returns on their R&D investments (Levin et al. 1987, Cohen et al. 2000). For this reason, it is not surprising that survey research also finds that most inventions are not patented (Arundel and Kabla 1998, Cohen et al. 2000). On average, large European firms applied for patents on only 36% of product innovations and 25% of process innovations. Again, pharmaceutical firms are outliers—they applied for patents on 79% of pharmaceutical products.

Conclusion. Why don’t patents reliably encourage R&D and growth? Probably because it is hard to sustain patent laws and institutions that make patents work like property. Patents applied to small molecule drugs do seem to work like property; they deliver wealth to drug pioneers and encourage R&D. For most other technologies it’s hard to find evidence that patents work as property. Similarly, over time and across countries and industries, patents sometimes deliver wealth and encourage R&D, but there’s no evidence that this is generally true. Future posts will identify the reasons that patents fail to perform like property.

About Dennis Crouch

Law Professor at the University of Missouri School of Law. Co-director of the Center for Intellectual Property and Entrepreneurship.

81 thoughts on “Do Patents Stimulate R&D Investment and Promote Growth?

  1. How can teens get their own patents on new and innovative ideas?Where do you go or look for as a teen to get a patent on an innovative idea that will actually help people? I’d like to know trustworthy and dependable places/sites/whatever you call them for patents. Please help

  2. I think that book patent failure is a very enlightening book and it was made to awaken if innovation does we realy need it and i’m eager to have that as soon as posible..
    ______
    miles

    MLS

  3. Your blog is very informative. However, Keeping the trading balance and to avoid pressure is pretty hard task but your post and experienced serve and teach me how to handle and make it more simple and manageable.

    Thanks for the tips… Best regards.

  4. Dear Max,

    Try reading a U.S. Patent from the early 20th century or prior.

    Very clear teaching. And brevity.

    My favorite? A patent on a watermill, number in the low 1000s. Gives step by step instructions for building the thing, complete with preferred dimensions of roughed lumber and notching locations. Runs about ten pages. Drafted before there was any of our fancy modern claims-drafting.

  5. Josef my thesis is that, in the USA, because the District Court judges can’t impose discipline (being German-speaking, you’ll like that word, I dare say) when it comes to patent infringement litigation, advantage flows to those who are blessed with a patent having a specification that could mean anything to anybody. I concede, the word “game” was ill-chosen. For those threatened with infringement of a claim of a US patent, this is anything but a game. But my use of “game” has at least kept the thread going. Do tell me I’m wrong (again), won’t you.

  6. MaxDrei I have troüble mit englisch so bitte, was versteht man unter: “Let me explain. The game under the law fostered by the US courts is to be sure never to write what the invention is.” Was ist die Bedeutung von Spiel?

  7. Granted, Curious. Any amount of innovation, both in non-patentable sm and patentable sm. My point is that Haupt needs publication, to carry his technical progress forward, and Haupt’s employer insists on filing before Haupt publishes. Further, I had in mind that comment of Dennis that started another thread, that FTI might be a subsidy that the USA grants to ROW.

  8. Why is “FTF is imperative, to foster innovation”? There actually has been a little bit innovation in the U.S. without FTF.

  9. So there we have it. From one who can speak from personal experience. FTF and innovation can co-exist. More than that: FTF is imperative, to foster innovation.

    Except that the vociferous spokesmen of the independent inventor continue to contend that abolition of FTI will bring about an extinction of the species, a trope that has been exposed on other Dennis threads.

    The point about a blog is that one doesn’t know whether the opinion stated is held by one, one thousand or one million readers. The lone voice is quickest to write “We” when he voices his individual opinion

    Mr Haupt, sorry you find patents unreadable. They aren’t always. Let me explain. The game under the law fostered by the US courts is to be sure never to write what the invention is. In Europe, however, the courts reward those attorneys who do write what the invention is. Obfuscators find in the end that their obfuscation was not a good idea.

    I am mindful that an issued US patent has, until now, been worth more than one written clearly, for the European PO. This won’t hold for much longer though, given that China and India follow the EPO rather than the USPTO. Those writing patent apps today will not see them litigated for another 5, 10 or 15 years yet. Things will be different, by then. Look into the future, obfuscators. Researchers, cheer up. Soon, patents will be more fun to read.

  10. Dear Mr. Huz,

    /// What is the value of disclosure? No comment intended here, just a question.

    As a researcher and inventor (with several patents under my name :->), I may not know much about patent litigation and examination. But, I would dare to say that the patent application process allows me to share information with other researchers with out giving away my rights to them. I dare to say that most, if not all, of the breakthrough that happen in our lab really is the result collaboration with other researchers throughout the scientific field. We routinely attends scientific conferences where we discloses innovative ideas to the scientific community and receive them in return. If we don’t have the patent systems, I doubt that my company management will allow myself or my colleagues to attend any scientific conferences or publish our R&D results in scientific journals. Our lab work very closely with several IP lawyers that go over whatever we want to publish to the scientific community with a fine-toothed comb and turn them into patent application or provisional application. That way we can publish safely without giving up our rights to our competitors.

    /// None of the clients I counsel spend much time (and most spend no time) reading prior patents.
    /// I would imagine at most large companies, the same is true.

    That’s true! I don’t even read my own patents. I did try to read them; they thoroughly confound me! Does that mean I’m not …. … One of Ordinary Skilled in the Art?

  11. do patents stimulate R+d investments and stimulate growth. just tale a look at the lopsided number of billionairs and multi-millionairs in the U.S. as compared to the other nations and it becomes obvious patents are responsible along with our worlds only inventors 4 high federals since 1790 for the entire world economy.

  12. As always Ordinary, you’re here to tell us that overall, the good outweighs the bad, with no evidence to support your claim whatsoever. Does having capital punishment prevent some .00001% of crimes outweigh even one innocent person dying? What about one innocent corporation put under? Does stimulating “innovation” or “disclosure” or whatever you want to call the benefit of patents (or the negative corrolation pointed out by the above authors) outweigh even the one corporation just trying to make honest headway in a market being put under? What if it’s YOUR corporation and you never saw the patent (partly because it was disclosed as a general round about way of saying a big bunch of bs)? Do you still cherish the patent system?

    Please, for the record, explain your position.

    I for one think significant changes are in order.

  13. Re: Do Patents Stimulate R&D Investment and Promote Growth?

    Gentlemen,

    With great respect that is due I say that, somewhere along the past several years’ line the IP community et al. lost it, i.e., lost sight of the forest and focused on a few trees.

    The United States Constitution says:
    Section. 8. The Congress shall have Power …
    Clause 8: To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;

    Here’s the thing:
    Most patents promote Science while some patents promote doodley-squat; that’s Just life, to take the bad with the good, get over it and move on.

    E.g., bringing up children certainly has its problems, but you learn to take the bad with the good.

    This example is from:
    link to idioms.thefreedictionary.com
    “take the bad with the good
    to accept the unpleasant parts of a situation as well as the pleasant parts. Bringing up children certainly has its problems, but you learn to take the bad with the good.”

    Regarding patents, like anything else,
    you got to take the bad with the good
    and deal with the bad on a case by case basis.

    I’m also reminded of the slang phrase which explains a lot:
    link to en.wikipedia.org

  14. “Patents, in fact, are an integral part of any R&D program worth it’s salt. Therefore, yes, patents stimulate and nurture R&D.”

    Completely illogical. I hope you’re not working on any of my applications.

  15. Patents are significant tools in the modern world of science & technology. Each R & D program starts with patents (at least in mind) and ends with patents (may be licensing, or even securitizing!). So patents are everywhere. Patents, in fact, are an integral part of any R&D program worth it’s salt. Therefore, yes, patents stimulate and nurture R&D. Patents could even be the aim of a R & D. After all everybody wants a bit of pie! However, patents-induced stimulation of R &D is more obvious and visible in certain technologies than others, which could be due to the inherent nature of the technologies.

  16. The company I work for is a spin-out from Duke University developing a diagnostic instrument technology. If there was no possibility of patenting our inventions, investors would not have invested in starting our company to develop the technology. Just as important, the executives and employees of our company wouldn’t have invested years of their lives at reduced pay plus stock options to develop the technology. To get the product to market, we’ll need to partner with or sell the company to a large firm with marketing capabilities. Large firms would have very little interest in such a transaction and undertaking the subsequent investment in product development, manufacturing and marketing if we had no patents. I and others who work with small companies struggling to develop new technologies have seen these scenarios over and over. Of course, supporting venture capital investment in R&D and the emergence of small companies is just one positive role played by patents, but it is an important one.

    I’m not saying that the system isn’t in need of adjustments. I would agree with adjustments along the lines outlined by Adam Jaffe and Josh Lerner in Innovation and its Discontents – restructuring incentives to reduce the flow of applications and the number of in force patents, improving examination rigor, and adjustments to the incentive to litigate patents (e.g., eliminating injunctions for patent trolls). The adjustments need to curb excesses and abuses while not also rendering patents unavailable or ineffective in the many instances in which they are needed to attract the investment that gets an invention across the finish line and into the hands of consumers. From this post (I haven’t read the book yet), the Patent Failure authors seem to be on an anti-patent bandwagon and ready to throw out the baby with the bath water.

  17. I just read the Besen and Meurer book in preparation for the UGA conference at the end of the month. Their basic point is that the patent system needs to do a better job in the notice function so that users can understand more clearly what is being protected and what needs to be either licensed or invented around. They are skeptical of abstract patent claims and the doctrine of equivalence in creating uncertainty and unpredictablity in patent practice. No fan of probabilistic patents or quantum patent mechanics, they!

    Their point is worth making and the book does a great job in brining together the various academic literature. I am skeptical that all we need is better notice. You can get that with a well structured registration system which skips the prosecution process as we have it now. But how many would find that desirable (forgetting the moment the loss in business that the shift would produce for patent attorneys). The problem I find with the author’s argument is that it does not carefully analyze the role of notice and role of disclosure and the separate roles of information production and information evaluation. “I own everything made by me under the Sun” provides notice, but little substantive disclosure. Furthermore, even if notice were adequate, the information revealed still has to be evaluated and the question remains as to what institution serves that role and how. I am not sure that the USPTO is a very good information evaluator, but it may be the best we have available.

    As for the connection between patents and growth/development, it is not surprising that the authors do not find a strong effect when focusing on one legal institution. I doubt a perfect patent system would get us too far unless we also have good capital markets, good contract and tort rules, as well as other legal and economic institutions that give patents some context within which to operate.

    Any thoughts on whether copyrights have done a better job in promoting growth than patents? I think the case can be made that the IP system worked well in promoting the software industry from the Seventies through the early Nineties without the protection of patent when copyright and trade secrets did the job. Within the terms of the Besen-Meurer argument, copyright probably does the notice function well with the idea and expression distinction and trade secret might work to define the relevant property rights through contract and employment arrangements.

  18. Thomas Edison seemed to have believed in the patent system, and did OK by it. Did they examine his business model?

  19. The writers of this book are pitting the haves against the have nots and humanity advancement with their book. They represent the established businesses that dont want progress because that means less money for them.Second window patent examinations can represent the same principles the retarding of advancement for the intrests of the established businesses.

  20. I just spent 10 minutes trying to get around spamfilter. wtf is wrong with h i j a c k the thread? Anyway, Fen, yes, let’s not do that, my point is made, and everyone else knows what their standard ho hum opinions are too.

  21. Oh, and gee “This doctrine, in effect, assumes that two claims in the same patent will not have the identical scope, but instead, that there is likely an intended difference in scope between the two.” ” By contrast, the dependent claim, such as claim 2, is narrower and more difficult to infringe, but as a result of the narrowing, may be farther from the prior art and, therefore, have potentially greater validity strength” That’s amazing, no, really, how long did it take them to come up with that? Nobody gives a dam, claim what you believe to be your invention, end of story no extra gimmie tries.
    Btw, this is the ridiculousness that brought back Off notice sticking to you like glue.

  22. I did Not make those up, I just put in two random classes and looked at the first things to pop up. Jesus people, those are some great “layers” you’re making there. Now, even if we assume that eventually they get down to making something of a substantial modification around o, claim 5 or 20 or so, w tf gives with all the completely obvious sht thrown in, that for your own giggles? It just makes me have to go on a big wild goose chase.

  23. BTW: Good dependent claim writing should add layers to the invention … claim drafter might be a morn”

    Too bad only one in 1000 actually do. The rest of deps are “hur, a round wheel” “a straight stick” “a slanted edge” “use x well known method” “use x in combination with y well known method” etc. on forever. Look at any one randomly selected patent to see this. Here, I’ll cite a few, completely random.

    here’s one appears to be a semiconductor:
    1. a method for making x parts comprising y subpart and blah blah inventive subparts.
    2. the method of claim 1 further comprising making well known subpart y in z well known fashion.
    3. the method of claim 1 wherein the metal layer is a b c or d.

    another, an adsorbent:
    1. a granulocyte adsorbent comprising a polymer having x and y in which z is r.
    2. The adsorbent according to claim 1, wherein the polymer is a, b, c, d, or well known mother fkin e.
    3. the granulocyite adsorbent according to claim 1, wherein r is well known t.

  24. Dependent claims 2-3 recite additional wheels; they don’t further describe the wheels of claim 1. There’s a difference between “further comprising” and “wherein”.

    And that’s as far into yet another deliberate threadjack as I’ll permit myself.

  25. “Please o sage one, tell me just exactly how claims 2 and 3 help to do anything other than have the examiner find and 103 in some specific wheels when the point of novelty is the WARP DRIVE. The case is patentable based only on the warp drive addition, not the wheels being round or having spokes.”

    First of all, this is YOUR strawman that YOU set up. Regardless, one recites the type of dependent claims your prepared (BTW, you have antecedent basis issues). Very likely, such claims would be introduced because of the doctrine of claim differentiation.

    link to tms.org

    BTW: Good dependent claim writing should add layers to the invention, as initially claimed. Despite your rantings, a claim drafter may not know whether or not a broad claim is patentable. As such, some dependent claims are directed to more specific implementations of the broad concept. Other dependent claims may limit to invention to a particular field.

  26. “Ya rly.” Fo shizzle rly?

    I’m afraid that I missed your bottom line for your assumption that not having 20 claims in an application somehow lowers it’s “worth”. The only problem I see is people can’t draft an ind. that isn’t a POS. And maybe, just maybe, that the court system has made the claim interpretation methods into ridiculousness that it is desirable to have 20 extra claims.

    Please, tell me why a patent with a claim that says:
    1. A bicycle comprising: a metal frame, wheels, a seat, some handlebars, and a geartrain assembly, and a warpdrive.
    2. The bicycle of claim 1 further comprising wheels that are round.
    3. The bicycle of claim 2 further comprising wheels that have spokes.

    Please o sage one, tell me just exactly how claims 2 and 3 help to do anything other than have the examiner find and 103 in some specific wheels when the point of novelty is the WARP DRIVE. The case is patentable based only on the warp drive addition, not the wheels being round or having spokes.

    The same thing can be said for nearly every last case I have sans the warp drive and put in “a bell” or “a whistle”. So stop your whining about “oooo I need deps” “oooo I need 6+ ind’s”, no what you need are more strict restriction rules.

    Oh, and btw, I would hardly say that allowing applicants the right to Claim What They Made is hardly eviscerating the patent system since that’s currently what is purported to be all that is allowed anyway. What you’re referring to as being eviscerated are “fishing” trips about what may or may not be allowable, largely funded by the maintainance fees of good, more likely to be worth a dang, patents. And you base that reference to the reasonableness of such trips on the weak arse premise that “I r invented it! I don’t know it yet, but I should be able to demand that an outrageously broad claim, as well as a proper recitation of my invention claim, and a blathering on about sht well known in the art claim(s), be searched so that maybe I’ll find out, hur”.

    I wrote some more but to sum it up, either the deps are required to make the claim clear (in which case they need to be in the ind) or else they’re doing nothing but “further clarifying” which is another way of saying “adding in the stuff that actually is my invention in case someone calls me out on the bs ind later”. Entirely unneeded if, like you believe, the ind is your contribution clearly claimed. They are fat that needs trimming at best and are at worst the reason your patent shouldn’t have issued under the ind under which it did because it wasn’t really clear enough to distinguish the invention properly.

    You of course see numerous claims invalidated in litigation, and “need” those deps. Well guess what the solution is, find out what your invention is before it issues, and you enforce it. Oh and don’t rely on the crutch of the PTO telling you what it thinks it is. If it takes millions of dollars to find out what your invention is, well, it looks like the cost of doing good business just went up didn’t it? Maybe instead of forcing other people to spend the millions to dig that art up and defend against you, you on the other hand should bear the burden of figuring out what your invention is before you go around enforcing it on other people. Don’t think it will take millions? You’re right, most times it won’t, so that burden is even easier on you.

    I hardly think things should be eviscerated other than the wholesale exploitation of a system (sorry publius, but that’s the $%^&* part above) too lax on people not knowing wtf it is that they are contributing. It would be like someone coming in to get a deed drawn up and saying, “hello, I’d like a deed please, and I’d like it to be on my property” and then handing you written description of what his yard looks like, how much square footage it has, and the number of blades of grass it has, the description possibly illustrated, then the man getting in line and smiling for two years until the clerk gets time to pull up the entirety of the map of the county and figure out which little dot is his property, and where they think the boundaries are between his and his neighbors property are. The guy is not even saying “somewhere in between my house and my neighbors house is the property line”, and not even showing, or putting down if they don’t exist, two stakes clearly marking the boundary in the illustration (no prior art illustration with section illustrating the differences). And don’t even pretend that examiner clerks are equipped, nor have sufficient time to survey and lay down the stakes properly for you anymore (that’s why you need those deps anyway amirite?), there’s too many neighbors lands to look through, and the picture of the county is fragmented horribly at best, especially if you won’t even identify which neighbor it is you want to draw a line away from (no prior art section).

    Oh, and btw, the evisceration apparently is going to lead to attorney’s being MORE valuable, not less, so give me a break about implying I want to destroy patent lawyers and the system. Somehow I’m sure you and I will do just fine, or we can chase ambulances, either way.

  27. 6k – “Don’t get me started on the rest of the reforms this system begs for like a screaming little $%^&*.”

    That’s nice. Could you try to conjure up a more offensive image while you’re at it? I don’t think that one is quite crude enough for us.

  28. 6k,

    Ya rly. I’ve seen you say multiple times that claims should be narrow and cover “exactly” what the invention is. I’ve seen you say that applications should have 1 or 2 claims.

    You talk of going to law school and going into private practice, yet you come on here and advocate completely eviscerating and rendering pointless the us patent system.

  29. patent rights do spur inovation and capitalazation however the greed of capitialism combined with no security and the uspto acceptance of patents by anyone spurs assaults death threats intimidations extortions ect. Against our worlds only inventor of significance the four high federals since 1790.Patent history indicates that without patents we would all be nomadic foragers or cavemen since the incentive to create is either survival or profit the later being what some would think should be proper in a civilized society but unfortunately not ours.Yes patents form the basis for civilized capitalism when issued to the actual concievers of the invention not developer thefters as all present U.S. patents are issued to.Inventor friendly legislation is the best way to continue our remarkable prosperity since before the invention of them we were primative. We can now see the restart of human advancement by creating a new patent system that is actually usable by eliminating the 15 different methods of patent thefts.

  30. “6k,
    I’m curious. Do you want the entire patent system to be abolished? It sure seems like it. You either want that, or for patents to be absolutely worthless.
    I don’t know that you realize, but a narrow one claim patent … utterly worthless.”

    You know what? I typed out a response, but it boils down to: O rly? I don’t see that in my cases, all I see are bs deps, so make it work you crybaby.

    Don’t get me started on the rest of the reforms this system begs for like a screaming little $%^&*.

  31. Not having seen the contents of the book, it is difficult to comment on the study. One point that most economists miss is the effect of patents in the formation of new enterprises (one exception being the recent study from BU). There is a difference between stimulating innovation or R&D investment and providing an entrepreneur with the bait needed to entice a venture capitalist or angel investor. However, the impact of new enterprises and the economy on the introduction of new products is difficult to deny (there is at least one the doctoral thesis at the HBS and the difficulty of introducing new products in established companies-the example case was the CRICKET, first 3.5 in., disk drive at Control Data).

  32. David French writes:

    So many words!

    The issue should be not whether a patent system, but what kind of patent system? The issue should be what kind of rights. And the policy background should be no more rights than are necessary to provide a realistic incentive for R&D and the dissemination of otherwise secret knowledge.

  33. If these people ignored the impact of patents on innovation in the biotechnology sector, then they have missed an entire industry that would not exist but for patents.

  34. Mr. Favre said

    “My predictions played a large part in this success. The Manager of Advanced planning and Business analysis said that he was getting a 100% inverse correlation on my predictions and based a lot of his decisions on this correlation.”

    That’s pretty funny. We could use a little more self deprecation here(not to be confused with flagellation or other forms of self abuse that occur here). How are you at predicting the stock market?

  35. 6k,

    I’m curious. Do you want the entire patent system to be abolished? It sure seems like it. You either want that, or for patents to be absolutely worthless.

    I don’t know that you realize, but a narrow one claim patent — the kind i see you constantly praise — excludes pretty much nobody, thus making the patent utterly worthless.

  36. Dear Amrozowicz,

    Maybe you will find this book apropos, a book which I think some of the commenters (I won’t name names but you know who you are, right Malcolm(;-?)) might benefit by reading. It is under $10, very small and not too many pages, but it is about a big subject – titled: “ON BULLSH-T” by Harry G. Frankfurt, Professor of Philosophy Emeritus at Princeton University.)
    link to press.princeton.edu

    In fact, it may be a good idea to make “ON BULLSH-T” compulsory reading before posting on the Internet. You’ll want to thank me in the morning.

  37. This is some of the worst writing about the patent system that I have ever seen. The conclusions are such a joke, it is not worth reading the remaining three posts they are going to provide.

  38. Regarding inventors not reading patents I do not think that this is generally true. An inventor that is highly involved in a particular technology (if they are smart) will read every source of technological information he or she can get their hands on to advance their knowledge. New tools like GooglePatents make this easier than ever before in history.

    For example, I read pretty much every patent that issues related to nanotechnology or microelectromechanical systems (see my blog at link to tinytechip.blogspot.com) and this has certainly given me some useful information (along with my graduate studies in nanomaterials) at pursuing my own inventions which I discuss on my other blog link to nanomorphware.blogspot.com.

  39. So this was their conclusion: “For most other technologies it’s hard to find evidence that patents work as property.”

    They failed to find the evidence. Perhaps, this says more about the authors than it does about the patent system.

  40. The Venture Capital system relies on securing patents to protect investments to bring new products to market. Without venture capital, or its equivalent, innovation will be greatly reduced. Every day I see inventors taking very large risks to create new products; they can only take these risks if they can protect a large investment of time and money. Often they leave larger corporations that lack the vision or risk-tolerance for creating their idea. For this group, no patent means no product.

    I have not read the book by Bessen and Meurer, but I can guess that their conclusions might be different if they reviewed the venture capital industry to help them make the connection between patents, innovation, and economic growth.

  41. From what is provided in the excerpts, I’m not impressed with their thesis. Relying on studies of British patent law/innovation? Britain is hardly a world center of innovation and hasn’t been for two hundred years. And analysis of Japanese patent law changes in 1988? Even now we consider Japanese patents to be of questionable value, due to their court system (likewise China).

    Do these guys deal with valuation of patents in terms of what they provide the assignee by exclusion of others from the field? How do you put a value on that? OK, for pharma, it’s easier, but what about other industries? I can say that from my company’s perspective, even from the inside we have no idea how valuable our patents are if others are steering away from our technology because of them.

    Finally, it looks to me like these guys were doing a study of a bunch of others’ studies. Bravo. They get paid for this?

  42. CAPat :”And I agree with someone above who posted that the disclosure comes from the ancillary publications patent owners feel free to do once they feel they have their inventions protected with patent applications on file. Of course the technical folks don’t read the patents — they are written for judges and juries. But they read the papers, and other documentation which is generated once the I.P. owner feels secure.”

    even bitter money would like to write for judges and juries, but — a valuable invention cannot be predetermined … clearly … it is the large serial infringers who have standing policies NOT to read patents as though it is better to do r&d by proxy or through the scores of attorneys who are reading publications (of patents, no less) … the number of filings with few or no cited art is not common to small entities and individual inventors … so, what exactly are those folks inventing in a vacuum? oh, the vacuum, maybe?

    one well known company had a specific secretary (she had a small staff) receive all notice letters and would testify at trial to her lack of patent knowledge … worked oddly close to a fella related to the term “patent troll” … legal theory to protect innovation or let’s play “i-dunno” in the name of innovation? technical folks would most likely be “one having ordinary skill in the art”- no? why are they purposefully not reading patents? whenthe same cannot be sdaid for the atttorneys hired to read patents?

    that sounds like a … well, “troll” operation … not a business in the hi-tech field … perhaps if they did not serially infringe they could fire some of the 100s of in house attorneys, avoid litigation, stop expensing the rows of in house patent publication readers and focus on their business … they cannot predict or stop others from entering a market if there is profit to be had and solid patents in hand …

  43. favre :: ain’t that a peach! everyone working for the same company looking at the same letters patent … point game set match

  44. My experience has been that inventors knew more about the technology disclosed in patents than the patent attorneys. The Research Director knew the most. Products covered by patents made the most profit and royalty income was huge. My predictions played a large part in this success. The Manager of Advanced planning and Business analysis said that he was getting a 100% inverse correlation on my predictions and based a lot of his decisions on this correlation. He knew a lot more about patents than I did, including foreign patents in his technology.

    The patents that I am talking about include chemicals, hardware, software and mechanical.

  45. Should I trust authors who can’t spell Douglass North’s name? Though I’ve yet to read the book or the article that preceded it, I’m skeptical of an economic analysis that seems intended to reach a particular goal. About 10 years ago I looked into this issue for a seminar in DC sponsored jointly by Johns Hopkins and the Smithsonian. I found only one paper (in Science magazine ca. 1980) that was worth anything. (I found Jewkes et al., then the standard work on the subject, worthless.) The authors of the piece in Science concluded that patents offered more benefit to society at large than to their owners. Unfortunately they had to promise anonymity to their sources, so follow-up was not possible.

  46. You can buy the comic book, after all its endorsed by none other than Cisco, the bastion of patent credibility.

  47. Thanks #6K for confirming for all of us your discriminating level of intelligence and judgment. How ’bout you buy the “patent-system-is-broken” comic book (“hey its got a great picture on the cover”), and I’ll buy the learned treatise by Chicago School Economic experts with decades of analytical experience on the very issue in question. I’ll bet many members of Congress will opt for the comic book too.

  48. “It doesn’t matter if patents spur R&D. Patents’ publication and categorization of technology sufficiently advances the useful arts to justify their existence (and Constitutional basis). Even if all that technology is old.”

    Is that … sarcasm?

  49. Caveman, probably a good read, but now I’m going to have to buy both books? How about you buy the sucky one in your link, and I’ll buy the good one in Dennis’s link k? We’ll compare and contrast when we’re done.

  50. “And I agree with someone above who posted that the disclosure comes from the ancillary publications patent owners feel free to do once they feel they have their inventions protected with patent applications on file. Of course the technical folks don’t read the patents — they are written for judges and juries. But they read the papers, and other documentation which is generated once the I.P. owner feels secure.”

    So in essence, we have a multibillion dollar expenditure so people can feel safe making publications that they could just make 5 years down the road when its safe anyway. Gee, that makes sense to me alright!

  51. My practice largely focuses on medical device start-ups, and I can report with a certainty that the VC’s want a strong intellectual property position in the medical device field. Patents are the prime focus of every round of due diligence I go through. Without an airtight patent portfolio the big guys won’t buy you out, they’ll just knock you off. Considering all the work required to get FDA approval and do the clinicals, that is unacceptable.

    And I agree with someone above who posted that the disclosure comes from the ancillary publications patent owners feel free to do once they feel they have their inventions protected with patent applications on file. Of course the technical folks don’t read the patents — they are written for judges and juries. But they read the papers, and other documentation which is generated once the I.P. owner feels secure.

  52. For those with greater than bathroom-wall-level reading and analysis skills (sorry Mooney) here is what appears to be a “Real” economic analysis of patents: “The Economic Structure of Intellectual Property Law” by William M. Landes , Richard A. Posner.

    I guess Landes and Posner were too busy to appear on Patently-O, or simply had the wrong agenda…

    link to amazon.com

  53. This is the stuff of an Emperor’s Clothes and Messrs. Bessen and Meurer are master tailors in deception. How long will it take the Emperor’s courtiers here to grasp the idea that a “patent” is piece of paper with ink smeared on it and a faux gold stamp glued to its front?

    So when Messrs. Bessen and Meurer suggest that “patents often fail to perform effectively as property rights”, well, duh … all pieces of paper fail to “perform” as anything but pieces of paper. But of course, as the wise and loyal members of the Emperor’s court none of us dare to call out these tailors for what they are, fabricators of incoherent nonsense.

    If there is a failing in the way that judges, jurors and others deal with the paper of a Letters Patent, it is the failings of these people and not that of the inanimate paper. Get real. The Emperor’s tailors write with nonsensical ink.

  54. It doesn’t matter if patents spur R&D. Patents’ publication and categorization of technology sufficiently advances the useful arts to justify their existence (and Constitutional basis). Even if all that technology is old.

  55. Mr Hutz asked:

    “What is the value of disclosure? No comment intended here, just a question.

    None of the clients I counsel spend much time (and most spend no time) reading prior patents. I would imagine at most large companies, the same is true.”

    I formerly worked for a company that did technical literature searching (including patents) for about 5,000 corporate clients. Individual clients ranged from librarians to engineers to lab chemists.

    In a good week, I would fill about 15 – 20 requests for information regarding known solutions to various technical problems. The usual bundle of search results would include about a half-dozen patents (sometimes very old ones) and a few journal articles.

    We had about 150 analysts when I worked there – so, about 2000 search requests were filled each week (given that I was one of the quicker searchers).

    Many of the requests were abstruse. The more esoteric, the more likely that the answer would be found not in a journal article, but in the specification of a patent.

    Anecdotally, the most generally informative U.S. patents seem to have come from the 1930s – 1970s. Thereafter, it seems like the hard engineering fields became so developed that further innovations were mere tweaks to previous leaps.

    Kinda strange that word count grew (according to Dennis’ prior post on that topic) even as substantive content fell. Much like this post, perhaps.

  56. “Propaganda is a concerted set of messages aimed at influencing the opinions or behavior of large numbers of people. Instead of impartially providing information, propaganda in its most basic sense presents information in order to influence its audience.”

    “…propaganda presents facts selectively to encourage a particular synthesis, or gives loaded messages in order to produce an emotional rather than rational response to the information presented. The desired result is a change of the cognitive narrative of the subject in the target audience.”

  57. Thanks Mooney, your comment was about as informative as the article. And I would easily classify you as a bitter naysayer.

    I find that statements such as: “Sakakibara and Branstetter look at the effect of a 1988 law that strengthened patents in Japan. They found no evidence of an increase in either R&D spending or innovative output which could be plausibly attributed to the patent reform.” Sound impressive at some level, but there really is nothing being said here. Rather than trying to awkwardly fit S&B’s findings into the author’s thesis and then gleefully report what the findings DID NOT show, why not tell us what S&B did find?

    A classic example of propaganda.

  58. I agree with one thing that CaveMan said: there are a lot of bitter people out there.

    Yup. Some people are really bitter.

    Really, really, really bitter.

  59. Two statements interest me for their, with all due respect, vapidity.

    1) “Apparently though, it is hard to set up and maintain a patent system that works as property.”

    ~ frankly, I’m not sure what this means. Maybe the writer stopped mid-sentence.

    2) “…it is hard to find evidence suggesting patents are a major factor spurring R&D investment, that patents contribute to economic growth, or even that the patent system is a source of great wealth to important inventors and innovators.”

    ~ last time I checked, a desire for a competitive advantage spurred R&D investment. Patents are a way to attempt to protect investments in NRE and fundamental research. Not the other way around.

    If this type of rigeur is what it takes to be at the forefront of “leaders” in the field of economic analysis of patent law, then sign me up. It is also sad commentary that there aren’t more people around to seriously debunk this type of writing.

    It goes to show two things: 1) anyone bashing patents under a guise of “analysis” can get time on this blog regardless of how underdeveloped or backward the thesis; 2) there doesn’t seem to be anyone out there who is really doing a proper analysis if this is what passes for leadership in the economic analysis of patent law. Excuse me, the “forefront” of leadership – that’s even better than leadership by the way.

    It seems to me like there are just a lot of bitter people out there who can’t seem to get on the real patent bandwagon and are relegated to the sidelines to engage in naysaying.

  60. Were it not for its utility patent rights, a major client of mine would be out of business because their ideas are easily replicated once their products are seen in the marketplace. But they can afford to pay their United States R&D employees because their patents give them to charge a reasonable price without having to compete with rock-bottom prices from foreign-manufactured knock-offs.

    I imagine that other companies, if they knew that their R&D efforts could be replicated in less than a month by a competitor, would be much less likely to invest in R&D. After all, how could they recoup/justify their R&D costs for such a small advantage?

  61. IPR — true in a limited sense … vcs care about people first … the patents are fallback after the big 2000-2001 meltdown — it left them with domain names and useless servers that were sold for 10 cents on the dollar … many times in the 1990s the following was mantra “we do not care about patents — the net has changed that and intellectual property in general — technology is faster than the law” — uh huh

    they NOW are more interested in patent protection but they certainly have no interest in funding IP litigation unless that is your biz-model and then all of the sudden you are called a “troll” …

    but read your term sheet closely and my best guess would be they own those patents even if the engineering team fails or the company must a take a direction that includes dealing with other patents outside the scope of the original terms …

    or simply because a market for this alternative asset is being demanded by their own investors … the wealthy who see the patent “business” as increasingly important … a developing country so-to-speak …

    btw, vcs do not create jobs (they do get very handsome returns when successful — even more so that the founders themseleves), entrepreneurs do …

  62. Did the study look at funding patterns of new companies? Patent rights certainly do not directly spur innovation. Venture capitalists do. As an entrepreneur I can tell you, while venture capitalists do not rely on patent protection to make their investments, it is certainly a factor they look at when they decide to invest in a company.

  63. my 3 dollars : it is absolutely correct that disclosure encourages diversity of views even directed at “old problems” … lionel why your clients do not read patents may be an issue in and of itself … big companies employee lots of attorneys to scour patents but prevent their engineers/inventors from doing so — begging the question of why?

    Bravo! THIS IS A STARTING POINT : “”DDC: To work well as property, the right should be predictably valid; have discernable boundaries; and not have an overly fragmented ownership scheme.” (equity and liquidity make me happy) – clear boundaries & metes and bounds – aka make standards for patentability more predictable / fairness in determining ownership – as a property right / liquidity to enable the discernible boundaries to enable market mechanisms to price patents in a more consistent way (namely those that are not tied to revenue stream, are more speculative and subjected to a limited number of interested buyers … )

    such diversity as incubator for innovation is common in other areas as well, namely competitive markets … when there is profit … participants will enter the market … a close friend interviewed for this book and was a bit confused by the disconnect on just why the impact of disclosure and the resulting diversity of ideas was largely ignored … my opinion :: it is simply impossible to predict a good patent to begin with … but those who continually invent are more likely to get it right than those that watch others doing the inventing … luck comes to those who keep busy … and who are not afraid to fail

    my friend pointed to the example of rsa (“U.S. patent for the RSA algorithm (# 4,405,829, “Cryptographic Communications System And Method”) was issued to the Massachusetts Institute of Technology (MIT) on September 20, 1983, licensed exclusively to RSA Security and expires on September 20, 2000″) ….

    in light of the literal DAVID VS GOLIATH situation rsa faced … the govt controlled and comfy ibm-nsa directed us govt data security by measuring their computation in acres and hiring the largest number of mathematicians known … the point that the actual primitives in security were being ignored out of hand (for political reasons? for other reasons?) (kerckhoff’s law — assume the adversary knows your algorithms) apparently did not resonate in the discussion … neither did the fact that a few folks looked at security from the privacy side of the issue … but, ive argued before the debate is one of balancing privacy with piracy and keeping the accounting/ownership of ip transparent and fair …

    — so why ignore the efforts of smart americans AND foreigners who are willing to file in the us (the authors conceded the point) … unlike them buying up positions in our banks as the dollar continues to weaken or take petro dollars resulting from 4 dol gal of gasoline … i choose making the uspto the best determinant of intellectual property bar none to maintain the thought and economic leadership that accrues when you protect (reasonably) the genius of inventors (and even authors and artists)

    qed >> the issue of how to define something like rsa versus other inventions comes to how a single patent, pioneering or significant, can suddenly change the thinking of so many in exchange for ensuring the patent holder was protected … no cryptographer would seek trade secret protection (not that that is not appropriate in other areas) as trade secret is inherent inconsistent with kerckhoff’s law … even if it means giving up some protection by using gpl licensed code … or accept hacks on your system to make improvements too were largely considered outlier events … in the interview for the book

    kevin noonan is correct >> it is the goods and services that are later sold which may include hundreds or thousands of patents — but each was valuable enough to be considred inherent to the product itself — a market decision was made either because of patent protection or because the device just had to be manufactured a certain way … an inventor, is not a marketer — should have reasonable understanding of the system and the risk reward ratio that the system offers — including things like changes in the law and inconsistent court rulings et al. should have no reason to fear — first to invent is fairly paid (not often) …

    when the activity in and of itself encouraging risk-taking in reasonable ways is the best a market system can offer to all of its participants …

  64. “6k – you say you “want to read this book”, implying that you have not read it yet, so how do you know they account for the disclosure aspect “very well”?”

    I read several different chapters as they were being made on their site. Just order the book, it’ll be a good read even if you believe that disclosure doesn’t happen when you sell the product in 99.9%+ of cases that make it to market. And if it doesn’t make it to market why are we having it littered in our repository of supposedly “useful” technology, aka the patent repository.

  65. “What is the value of disclosure? No comment intended here, just a question. None of the clients I counsel spend much time (and most spend no time) reading prior patents. I would imagine at most large companies, the same is true.”

    Years ago I heard a plausible argument for how patents promote dissemination of technical knowledge. While it is true that few technical people read actual patent documents, the patent system gives business executives the confidence to allow their engineering staff to publish in trade journals, without fear of competitors stealing ideas. Even within a single company, technical people can be encouraged to familiarize themselves details outside their immediate ambit and to share information with others, without fear that an individual will walk with all the trade secrets. Thus patents indirectly encourage disclosure, but encourage it nonetheless.

  66. What is the value of disclosure? No comment intended here, just a question.

    None of the clients I counsel spend much time (and most spend no time) reading prior patents. I would imagine at most large companies, the same is true.

  67. Is biotech considered under the umbrella of “pharma” in this post? Patents are certainly valuable to biotech startups.

    I have little doubt patents do nothing to promote software or “business method” innovations.

    6k – you say you “want to read this book”, implying that you have not read it yet, so how do you know they account for the disclosure aspect “very well”?

  68. It sounds to me like the only rational conclusions to be drawn are:

    (1) Sometimes patents work very well to stimulate innovation (pharma).
    (2) Sometimes TS works better.

    Thus, leave the patent system alone and let inventors use TS when appropriate.

    OK, I can’t let a few of these go w/o comment:

    The authors state: “Moreover, the firms that acquired relatively more software patents tended to actually reduce their level of R&D spending relative to sales.”
    –Thus, patents resulted in more efficient use of scarce R&D dollars in this technology. Hooray!

    Authors: “…lagged R&D (R&D from five years earlier) is positively correlated with subsequent intellectual property rights strength. This suggests that there is, indeed, a significant reverse causality”
    –in other words, as a country developed to the point that it was spending lots of R&D bucks, the R&D spenders figured out they had to protect it and lobbied for stronger patent rights. This occurs about the time it is more profitable to invent than to pirate. We’ve watched this happen most recently in S. Korea.

    Authors: “However, domestic inventors actually patented at a lower rate after the change, both within their country and at the British Patent Office. Why the decline in English patents? Probably because there was less invention after patents were strengthened.”
    –ah, Econ 101. The Brits don’t have a comparative R&D advantage over “the foreigners”, so the efficient result occured. That is, once it became safe to export tech to GB, it got exported. Thus the Brits imported the fruits of more efficient producers of R&D results and exported something (where they have the advantage). All parties are richer. Hooray!

  69. Is the outcome different if you take out biz methods and software? I expect the opposite conclusion can be found in chem and biotech, as well as pharma.

    Surveys! They base these sweeping conclusions on surveys (at least partially). They are NUTS! The question that needs to be asked is whether the corporations would cut R and D spending if they could not get the exclusivity of a patent. That answer, at least in my areas, would be a huge yes. You want to stifle innovation and screw up a system that works? Feel free.

    The problem is biz methods and software, leave the rest of use alone.

  70. I want to read this book. This may well be the first book I buy off of Amazon as soon as it’s out.

    Oh, and Noonan, everyone knows about the disclosure part, and they account for it. Very well I might add.

  71. Hairy: My point is they look in the wrong place. They are looking at the exclusionary property right, and asking whether companies do better or worse if they have it; that’s why they say patents seem to “work” for pharma. But they don’t (and probably can’t) gauge the effects of disclosure. In the past, when inventions were mechanical devices disclosure came about when you sold the device, so disputing whether patents drove the Industrial Revolution is meaningless – disclosure happened with or without patents.

    The same is true about the Lerner study (how to detect the effects on the small subset of chem/pharma patents overwhelmed by the mechanical patents that predominated through most of the 177 study period). And I’m not surprised that the Japanese patent law changes didn’t spur innovation, coming at a time when their buying orgy of US commercial real estate was taking up a good portion of the investment yen.

    So I don’t care about mechanism, I care about effects, and the effect of disclosure promotes innovation. When an economist can prove that thesis wrong, I’ll change my mind.

    And my apologies to Mr. Bessen for the typo in his name in my last comment.

  72. I submit that Patents provide less benefit in the non-drug arts, because the Patent offices and the courts think everything is obvious in the other arts or because law makers take away rights (ala RIM) in the other arts.

  73. I submit that Patents provide less benefit in the non-drug arts, because the Patent offices and the courts think everything is obvious in the other arts or because law makers take away rights (ala RIM) in the other arts.

  74. I submit that Patents provide less benefit in the non-drug arts, because the Patent offices and the courts think everything is obvious in the other arts or because law makers take away rights (ala RIM) in the other arts.

  75. “what economists miss in their analysis is that patents don’t directly spur innovation”

    But the analysis they are talking about is looking for an effect without determining the mechanism.

  76. I’m sorry Dennis, but what economists miss in their analysis is that patents don’t directly spur innovation; they promote disclosure, and THAT spurs innovation. Innovation will happen with or without patents, because everyone wants a “better” mousetrap (although “better” can certainly be influenced by marketing; indigestion sufferers were very happy taking Prilosec until they had to have “the little purple pill,” Nexium).

    But putting the information (which is different from the invention; DNA claims are a perfect example of that) into the public domain raises the knowledge in the art and advances the point where the next inventor can start from. Patenting encourages this, and that is how it “promotes the progress.”

    And then there is the “David and Goliath” aspect. If you believe (and I’d be interested in someone looking into who funds your featured authors) that “big” companies are the principal source of “innovation,” then of course patents don’t do much to encourage it – the corporate R&D departmental budgets do that. But if you have any sense of history, it tends to be the small companies that have the flexibility to do the real innovation, and without patents they will be less able to protect their innovation and the vision of a new world (with iPhones, EPOgen, etc.) that comes with it.

    One can only hope that Messrs. Benson and Meurer don’t provoke another round of patent “reform.” We haven’t survived this one yet.

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