Patents and Innovation: Friends or Foes?
École Nationale Supérieure des Mines de Paris - Centre d'Économie Industrielle (CERNA)
Over 2 million patents are currently in force in the EU and in the USA. Do they testify innovation is blockaded for they restrict freedom in research or do they give evidence innovation is flourishing for patent law provides incentives to invent new products and processes? In other terms do patents freeze or spur innovation?
The question arises for massive anecdotal evidence shows the patent system may have turned on its head, e.g., USPTO and EPO examiners spend less than 30 hours per application to assess whether the technical input is useful, novel and non-obvious; as a result, the list of trivial patents such as one-click online shopping is growing each day; some companies, so called patent trolls, have specialized in amassing patents just to litigate and get damage rewards; one of them has recently obtained $612,5 million from the manufacturer of BlackBerry to settle an alleged patent infringement; European patents are translated in several different languages, a costly burden for applicants, although nobody reads the translations.
The belief of the layman in the patent system has evaporated. He is at best skeptical on the benefits of patents for society.
Economists are not innocent for this change in perception. 50 years ago they established (Nordhaus, 1969) that patent law tends to stimulate R&D too much in organizing races to patent first with too many firms. By contrast, during the 1990s, they pointed out that patents hinder innovation in reducing incentives for secondary inventors when research is cumulative and in raising an anticommons problem whereby patents are allotted to a multitude of small owners. For people unfamiliar with how economic theory goes, it may seem that economists also changed their mind and burnt today what they incensed over the past. In fact, it is important to know two features of development in economics. Firstly, economists are mainly interested in pointing out what does not work rather than what does work. Market failures and public intervention failures are what drive their curiosity. The light they cast on the world in their papers is rarely pink. Secondly, economic models are local; they focus on a small number of parameters and trade-offs. They do not pretend to embrace a whole system and being able to calculate a net gain for society in taking into account all phenomena they study in isolation. This may misleadingly give the impression that economic theory has now proved that patent law hinders innovation rather than it stimulates it, that is, that absent patent law, innovation will be stronger.
The aim of this study is to try to get a clearer picture on what economics enables us to say on the impact of patents on innovation. We are grateful to Air Liquide, Alcatel, Microsoft, Philips and SAP for the opportunity they give us to revisit this basic question. This study has been carried thanks to their financial support. Of course, its contents only engage their authors and not these companies.
Number of Pages in PDF File: 83
Keywords: Patent Innovation Intellectual Property
JEL Classification: O31, O34
Date posted: January 25, 2007