Intellectual property: Extract from Economics in Two Lessons (expanded and amended)

Another draft extract from my book-in-progress, Economics in Two Lessons. It’s the last part of the section on “predistribution”, dealing with Intellectual Property. Next up, “redistribution” through taxation and public expenditure.

As always, encouragement is welcome, constructive criticism even more so.

The system of property rights in market societies is based primarily on private property rights, that is, the exclusive allocation of control over some asset to a single person (or, in modern forms of capitalism to a corporate entity). The concept of ‘private goods’ in economics refers to goods that are rival and excludable in consumption. There obvious similarity between these concepts, which often leads to the assumption that the two are identical

In reality, the are crucial differences. The economic concept of private goods relates to the technological properties of the good in question. Private property is a right created and ultimately enforced by law, which may be applied, or not, to almost anything, whether or not it corresponds to the economic idea of a private good.[1]

In particular, public goods (in the economic sense) may be the subject of private property rights. The most important example is that of ‘intellectual property’, that is, rights to control the use of information, such as copyrights, patents and trade marks. Enforcement of such rights typically involves the imposition, after the fact, or penalties for reproducing information without the consent of the owner of the rights.

More than any other kind of property, intellectual property rights such as patents are obviously creations of the states that define and enforce them. Patents were originally monopolies over common goods such as playing cards, used by the Tudor and Stuart monarchs in England to reward favorites or sold off to raise money to fund wars and other expenditure.

The creation of intellectual property rights provides an incentive to generate new ideas, or at least ideas that are sufficiently distinctive in their formulation to attract intellectual property protection. But the enforcement of these rights means that use of the ideas in question is restricted, even though, since ideas are non-rival, there is a social benefit to unrestricted use. Economists have examined the trade off between the costs and benefits of intellectual property protection and have concluded, in general, that the costs of strong forms of intellectual property protection outweigh the benefits.

By the time the US Constitution was drawn up in the 18th century, patents and copyrights were recognised as a way to encourage innovation, as were the dangers of excessive restrictions on the flow of information. The powers of Congress included (emphasis added)

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.

The first Copyright Act passed in 1790, granted authors the exclusive right to publish and vend “maps, charts and books” for a term of 14 years. This 14-year term was renewable for one additional 14-year term, if the author was alive at the end of the first time. Similarly, inventors could patent their ideas for 14 years.

The terms of copyrights and patents were extended moderately over the subsequent two centuries. Since the resurgence of market liberalism in the 1970s, however, both the duration and the scope of what now became known as ‘intellectual property’ have expanded massively.

Just about anything, from colours to chromosomes has now been made the subject of intellectual property. In 2010, Apple Computer even attempted to claim a trademark the letter ‘i’ but an Australian court rejected the claim.

The duration of copyright was extended to the life of the author plus 50 years in 1976, and to life plus 70 years by the Sonny Bono Copyright Term Extension Act of 1998, with corporate owners of ‘work for hire’ getting a further 25 years. The passage of the Act was due in part to pressure from the European Union, which has generally supported strong versions of IP [2], and in part to the efforts of the Disney Corporation, whose copyrights on cartoon characters such as Mickey Mouse and Winnie the Pooh were in danger of expiry (leading to the derisive label of the Mickey Mouse Protection Act,

The claims of IP have also been used to suppress public debate and support secrecy about wrongdoing by governments and corporations. The Church of Scientology is particularly notorious for its use of copyright claims to silence critics. Less spectacular, but almost certainly more damaging is the development of the doctrine of ‘commercial in confidence’ intellectual property. This doctrine is used, in particular to suppress information about dealings between corporations and governments, providing a convenient cloak for misrepresentation and corruption.

The expansion of patents is equally problematic. The barriers to claiming a patent have been steadily lowered, and the scope of patents expanded. Among the most problematic results have been the patenting of obvious and well-known ideas in computer programming and the development of ‘business method’ patents. The two coincided during the ‘dotcom’ boom of the 1990s, when just about any business transaction, from corporate procurement to selling dogfood, could be patented with the simple addition of the words ‘on the Internet’.

Paradoxically, this expansion of intellectual property rights has happened at the same time as the explosive developments in information and communications technology. Ideas, in the form of text, audiovisual material, open source software and the designs required to make physical products can now be shared globally on a massive scale and at almost no cost.

The result is a mess. On the one hand, intellectual property rights are routinely violated, on a massive scale, by just about everybody. On the other hand, the combination of massive scope and haphazard enforcement creates a minefield for anyone in a position to be sued. A snatch of an old song playing in the background of a movie or a few lines of recycled computer code can open up scope for costly litigation, with the result that it is usually easier to pay up than to fight.

“Patent trolls” make a profitable living in this fashion. And despite the name, these trolls include major corporations. Warner Brothers made millions suing anyone who had the temerity to perform the song “Happy Birthday to You” in public, even though the song had been in the public domain for at least a century. (The tune, with different lyrics, dates back to 1893. The words we sing evolved over time, through what is sometimes called the ‘folk process’)

Economic studies of patents and copyright have reached the similar conclusion that the damage caused by IP enforcement exceeds the benefits in terms of innovation. Is there a good survey on this?

The Copyright Term Extension Act of 1998 provoked an extraordinary response from the economics profession, spanning the gamut from free market advocates like Milton Friedman to interventionists like Akerlog. These and others (including a total of five winners of the Economics Nobel) joined an amicus brief to the US Supreme Court in a case challenging the constitutionality of the Act, a challenge which unfortunately failed.

The conversion of ideas into IP has had even more corrosive implications, by providing one of the key vehicles for global corporate tax avoidance. The basic method is simple: ideas developed or bought by corporations based in the US and other large countries are turned into the IP of a subsidiary located in a tax haven which specialises in concessional treatment of such property. Ireland, for example, charges only 6.25 per cent on income from IP. Companies then pay themselves (or rather their Irish subsidiaries) large amounts for the right to use their own ideas. This payment reduces their profits at home, while the Irish subsidiary pays almost no tax.

The basic method was, until recently, improved by using a second Irish company located in a Caribbean tax haven (the ‘double Irish’) and then rerouting the profits through the Netherlands (the ‘Dutch sandwich’) thereby eliminating tax altogether.

The problems of international tax avoidance and evasion are complex and the effort to curb such avoidance will take many years to succeed, if indeed it does. But reversing the shift towards stronger and stronger IP would be an important step in the process, as well as being beneficial in itself.

What could take the place of strong IP? In many cases, no replacement is needed. No social purpose is served by restricting publication of the works of long-dead authors, who could not possibly have anticipated this outcome when they wrote. Even looking forward, it’s absurd to suppose that I (or any author writing today) am writing in the hope of providing an income for my unborn great-grandchildren.

Similarly, most of the new categories of patents that have exploded in recent decades (business methods, adaptations of standard ideas to the Internet and so on) are positively undesirable. If a new patent required a positive demonstration that the alleged invention was in fact novel, non-obvious and socially beneficial most of these patents would disappear, along with the ‘patent trolls’ who exploit them to blackmail genuine innovators.

In some cases, such as pharmaceuticals, it is necessary to reward the private corporations that produce new medicines. Around 15 per cent of the total revenue of pharmaceutical companies is allocated to research and development, a figure matched only by the information technology and communications sector.

But nearly all of the money these corporations receive from patent-protected medicines comes, directly or indirectly, from governments. In the United States, and other developed countries, governments contribute to the pharmaceutical industry through support for basic research. Much more important, however, are payments through Medicaid and Medicare, which have greatly expanded as a result of Medicare Part D, introduced under the Bush Administration. In addition, the US government subsidises health insurance for most of the population through tax benefits for employer-provided health insurance and through the Affordable Care Act (Obamacare). A substantial part of this subsidy flows through to support the purchase of prescription drugs.

Unlike other governments, the US government does not bargain with pharmaceutical companies over the price of medications (Medicare is explicitly banned from doing so). Rather, companies set their own prices in bargains with private insurers. Unsurprisingly US pharmaceutical prices are around 50 per cent higher than those in other developed countries.[3]

Advocates for the pharmaceutical industry claim that this system enables funding for research and development, and that other countries are effectively being subsidised by the United States. There is some truth in this claim, but the higher prices in the US owe at least as much to marketing efforts and to the ability of pharmaceutical companies to secure monopoly profits thanks to the protection of intellectual property.

It would be far better for the US to follow the example of other countries and negotiate directly with pharmaceutical companies through mechanisms like the Australian Pharmaceutical Benefits Scheme. Companies with a new medication (or even a prospective new medication) could negotiate for an agreed rate of payment and a period after which generic alternatives would be allowed. Ideally, the current exemptions for poor countries would be expanded to allow immediate access to lifesaving treatments at or near the cost of production.

There would certainly be difficulties in sharing the global costs of such an arrangement between the US, EU and other national governments, replacing the current effective US subsidy. But these would be minor compared to that amounts currently wasted through the IP system.

Finally, and most importantly, governments could do more to support contributions to the public domain. Historically, the most important form of government support has been the funding of (mainly university) research through bodies like the National Science Foundation. However, the public good motivation for funding research sits uneasily with continuing pressure to ‘commercialise’ research through patents and other forms of intellectual property.

The emergence of the Internet creates a vast range of possibilities for expansion of the public domain. While much of this will take place spontaneously, governments could help in many ways. First, and most importantly, ‘fair use’ exemptions from …

A more active form of support would be the provision of grants to assist creative projects, ranging from cultural work to open source software that make their outcomes available through the public domain or through variants like the Creative Commons licensing. Repositories such as Github (for open source software) would be an obvious model. While it would be undesirable for governments to seek to control the outcomes of such projects, this is an area where relatively modest financial support could yield substantial social benefits.

As far as intellectual property rights were concerned, the drafters of the US Constitution2 understood the Two Lessons better than their successors two hundred years later[4]. Property rights are social constructions, with both benefits and opportunity costs. Markets cannot determine the appropriate balance between the two because they only permit trade in property rights that have already been created. So, the determination of property rights is a crucial aspect of predistribution.

1 For example in Britain, army officers could buy and sell their commissions, a practice which continued until 1871

[2] Anecdotally, one of the forces pushing for protection was the Bavarian government, which held the copyright over Hitler’s Mein Kampf and had prohibited publication. While we might sympathise with the desire to suppress this evil book, the case indicates the way in which copyright limits the flow of ideas of all kinds

3. The absence of direct bargaining contributes substantially to this outcome, but it is not the only causal factor here. The quasi-private system prevailing in the United States produces higher costs in almost all areas of health care.
2 Of course, in other respects, most importantly the implicit acceptance of slavery, the Constitution’s treatment of property rights was appalling.

74 thoughts on “Intellectual property: Extract from Economics in Two Lessons (expanded and amended)

  1. DonaldO,

    Thd fundamental central element of a patent is a novel idea or combination of novel ideas.

    No Change

    An 8 fold increasd in th global population coupled with greater participation in those populations has increased the number of lodgements though I doubt exponentually.

    One vital featurd of patents that all here fail to observe is that the patent register is a rich source of marketable products in the out of time patents which is a huge body of creative thinking. You are all here concentrating on the leading edge when the trailing tail is so much larger.

    Another feature of that is if there was no patent register at all then all of that creative thinking would be lost as peoples ideas would never be recorded or preserved.

  2. BilB,
    “You are all here concentrating on the leading edge when the trailing tail is so much larger.”

    This looks to me to be a convincing argument in an international context. I am familiar with evidence (papers) on how information on patents provides an incentive for others to work around it and, as a consequence something new is created.

    Still, it seems to me your point is limited to innovations of private goods or the processing of such. Furthermore, there is the difficult to answer question whether the ‘new’ innovation changes the satisfaction level of buyers. Related, does this competition among innovating enterprises put downward pressure on some workers wages? No simple answers, IMHO.

  3. Thanks Ernestine,

    The thing the should be understood is that 99% of the products we buy throughout our lives either never had patent or were beyond their patent period, so the economic impact of patents on our lives is negligible.

    There are some things that are bought, such as a car, which might have a number of patented components there to either make the vehicle work better or be more appealing to us the buyer. The impact on the price of the production cost of the overall vehicle will be quite small but the increased cost of the vehicle will either be nothing or some significant amount depending upon the appeal of the innovative feature.

    As the buyer we will generally have the option to chose the enhanced vehicle or the regular vehicle. That is a choice. Many people will by the enhanced product simply because it is more expensive and therefore to a degree exclusive. When I was working for Metters Ltd decades ago, there was a complete product range that the company sold at cost. This range was available to everybody but was mainly sold for housing commission homes. The company made its profit from the perceived higher quality product with a progressive list of enhanced features (heated butter conditioner…who really needs one) and with a progressively higher price tag. This is business and how it works.

    Patents in manufactured goods do not in anyway cause hardship or economic distress. I’m actually quite annoyed by these arguments that suggest that everything should be available to everyone for the absolutely lowest possible price and that patents are somehow a barrier to that.

    The fact is that by far the largest component in the retail price of a product is distributor’s profit, which is generally a factor of 5 or higher over the production cost, which I hasten to add includes the costs of any IP.

    It may be a very different situation in the pharmaceutical and biotech industries, but I suggest there that the problem is that the bulk of the research is being done in the corporate US of A, aka Libertaria, and if the world wants cheaper pharma then they can do the research and development themselves in their own country and sell it into the global market at more reasonable prices.

  4. Oops, that wasn’t what I thought it would be, but it does rise to the level of wacky that I anticipated.

  5. @BilB

    «if there was no patent register at all then all of that creative thinking»

    The vast majority of patents are useless in practice and are never used or enforced. Many companies patent stuff just to have a box of trading chips when doing anti-competitive cross-licensing deals.

    «would be lost as peoples ideas would never be recorded or preserved.»

    That is not a side effect, that is the most aspect of the patent system.

    The patent system is not designed to foster progress by rewarding *inventions*, that’s a complete and malicious fabrication, but by rewarding the *publication of the technical details of inventions*, and by *confiscating the private property of inventors*.

    Because inventors have always the option of using the protection of *trade secrets*: by keeping an invention secret they can enjoy the profits of their monopoly.

    But trade secrets are bad for the development of technology, so the patent system has been designed not to remedy the lack of inventions, but the lack of publication of the technical details of inventions.

    In order to provide an incentive to publish the technical details of inventions, and the sooner the better, the patent system rewards the *publication* of those technical details, and in order to offer more than the trade secret system, it offers exclusivity: the first inventor to publish an invention (or to invent and publish in the USA) gets the right to prevent other inventors of the same invention from using it.

    That is the essence of the patent system is that it rewards publication of the technical details of inventions by confiscating the proprietary rights of other inventors of the same inventions who have kept it a trade secret.

    That’s why in the USA constitution the granting of patents is an enumerated power of Congress: if it were not, the takings clause would prevent Congress from confiscating the right of inventors to practice their own invention keeping it a trade secret.

    A lot of effort by the agents of big IP rentier interests has gone into obscuring that the goal of the patent system is to reward publication, because IP rentiers would like to combine the worst aspects of patents and trade secrets: getting a patent for having merely made an invention, confiscating the right of competitors who have made, as it usually happens, the same invention, without having to publish its technical details.

  6. «Patents in manufactured goods do not in anyway cause hardship or economic distress.»

    I guess then that all those patent litigations suits or actions before the federal trade commission to block the import of “patented” goods are completely pointless… 🙂

    One interesting variant to the patent system that would make it a lot less objectionable would be automatic licensing, where publication of an invention gives an exclusive right to the patent owner, but anybody can license the invention (for a fair and non discriminatory royalty) for manufacturing. This would mean that the best producers could compete at manufacturing, while at the same time rewarding the patent owner.

    But strangely IP rentiers are ferociously opposed to automatic licensing :-).

    «The fact is that by far the largest component in the retail price of a product is distributor’s profit, which is generally a factor of 5 or higher over the production cost, which I hasten to add includes the costs of any IP.»

    That’s irrelevant — what matters is the factory price, and even a few percent of difference to the factory price are a big deal. Companies fight ferociously against their workers to hold down their wages even if the effect on price is a few percent too.

    The fact is that often net profits on factory price are a few percent, and patent royalties of even 1-2% can cut net profit by a large proportion.

    In practice patents are used to create monopolies, usually not hugely exploitative ones, but invention monopolies reduce the progress of science and technology, because they restrict the learning and diffusion of skills related to the invention.

  7. I often ask patent system supporters that claim that patents have a large obvious positive net effect on the economy to demonstrate this quantitatively, because if it is large and obvious it must be easily demonstrated with statistics as to impact, but I have never seen such a study.

    Years ago I had similar discussions about the merits of the patent system, and found a number of studies that showed that on balance at best the benefits match the costs, or the costs are bigger than the benefits; net benefits have been found only in a few countries in a few cases.

    One of these studies was Asutralian, and an earlier one Canadian, both official government white paper, both concluded that patent system costs be larger than benefits.

    Understanding this well, both the Australian and Canadian governments however expanded the patent system in a deal with the USA, because they regarded the costs of the patent system as a kind of tribute that had to paid to USA IP rentier interests to bribe them to lobby the USA government to sign some treaties with Australia and Canada that had compensating advantages.

    Both are mentioned for example in “Intellectual Property”, by WR Cornish (Sweet and Maxwell), page 73:

    «in Canada, the patent system came under careful, but sceptical scrutiny from a team of economists.To them it seemed to operate largely as a shield for the imported products of foreign owners (mainly from the United States), while doing very little to encourage the development of home-based industry. [ … ] [54] Economic Council of Canada, “Report on intellectual industrial property” (1971) (with additional background studies); Firestone, “Economic implications of patents” (1972). For a similar appraisal in Australia see Manderville et. al. (below, n.88).»

    The Australian study:
    «Economic effects of the Australian patent system»

    The Canadian study:
    «Report on Intellectual and Industrial Property»

  8. Blissex, I disagree with everyone of your points, from experience, but this one..

    ” but invention monopolies reduce the progress of science and technology, because they restrict the learning and diffusion of skills related to the invention”

    ….is just plain wrong. I challenge you to prove this to be true. Demonstrate how patents reduce the progress of science and technology particularly where you claim that the majority of patents are useless.

    Blissex at #56, What the ?? Trade secrets? If I can manufacture without divulging the substance of my product I am going to do so. The patent system is not going to make me come out from under the covers. Most micro controllers have code burnt into their ROM which cannot be read, that is the best form of IP protection there is, patents are not forcing developers to divulge their code.

    The failure to the USSR could well be put down to the fact that where there is no return for personal effort or thinking there is no technological growth. The USSR needed to plunder the West for technological ideas, which they were very good at on-developing inside specially purposed units (there is nothing lacking in Russian’s ability to think), but economy wide the country was an ideas desert simply because there was no method by which people could have an idea and put it use for others and get a return for the effort.

    Your trade secret argument is a crock. But it is true that ideas that cannot be commercialised are unlikely to ever be known. One of my best inventions is locked away in my computer simply because I cannot see a path to get it commercialised yet. It is a very compact gearbox for push bikes which I thought out for a folding bike I want to build for myself. This gearbox makes it possible to have 13 speeds built into a tiny volume to make a bike with small wheels feel like a conventional bike. But my locked away idea is in no way holding up the development of push bikes. It is a raging ideas storm out there on the bicycle front as any regular reader of Gizmag will know. With 7 billion brains out there my idea could well turn up tomorrow thought out by someone else.

    As an inventor I know only too well that…


    Patents give a business a very short window to commercialise ideas, that is all the patent register does.

  9. One form of information deprivation that I don’t think has been mentioned in this discussion so far, forgive me if it has, is paywalling.

    What do the absolute freedom of information proponents have to say about that?

    I think I am safe in saying that be far my most commonly experienced deprivation of information occurs when I research an information stream but the information is owned by one organisation or another and can on be acquired via payment after obtaining an “account”.

    Is this crippling my life? No. Is it annoying? Yes. How do I get around the problem? I ask a different question.

  10. Blissex, You can’t be serious saying this

    “The fact is that often net profits on factory price are a few percent, and patent royalties of even 1-2% can cut net profit by a large proportion”

    So every business downstream of a retailer should work for nothing so the distribution chain can support a bloated bunch of executives in New York and their billion dollar lifestyle from profits of hundreds to thousands of percent, and you have the gall to suggest “IP rentiers”?????

  11. BilB, you forgot the money man who introduce themselves at every link of the chain, chipping away at the coin. IMHO, or should I say out of professional habit, I don’t subscribe to looking at an economic topic only from the perspective of ‘society’ (‘in aggregate’, ‘on average’ or some other stat measure) or only from the perspective of an individual. For example, a patent on a technical innovation associated with a private good, held be a person, say an engineer, also signals technical competency of the patent holder, irrespective of the system wide consequences. This signal is in turn valuable in the so-called ‘labour market’, and I would imagine, it feels good to have achieved something.

  12. That is a very good read, MartinW.

    It highlights to point I was making to Blissex’s comment about profits. Andrew Leigh is talking about market concentration and I have a lot to say about that, particularly where concentrated market operators use their buying power to distort or even cripple economies.

    This is experienced daily, I believe, where the buyers of large chains prefer to buy offshore, not because the local product is not competitive, but because the buyers themselves who wield buying power in the millions of dollars can personally profit invisibly, I believe, when all transactions are done in economies with less than transparent practices.

    I have personally attempted to take this up with government (under Howard’s stewardship) to experience absolute denial, disinterest, even lack of knowledge on the legal status of trade inducements and zero intention to examine the subsequent taxation losses. The downstream of this practice is that innovation and investment in the local economy falls away simply because one cannot manufacture successfully if the product does not reach the buying public.

  13. Ernestine,

    A good example of your thinking would be Dyson with his vacuum cleaners.

    Dyson’s first invention was the ball wheeled wheel barrow which was successful not because it was a better wheel barrow but because the notion was novel in a way that captured people’s imagination. As a consequence, I recall, Dyson captured for a time two thirds of the UK wheel barrow market at twice the product price. There were plenty of better cheaper wheel barrows, but people bought his because they liked the idea of it.

    Dyson, reportedly, now commands a team of several hundred designers and engineers developing new products for global markets. Without the patent protected success of his earlier product there would never have been a Dyson vacuum cleaner, and the losers would be the millions of satisfied Dyson product users around the world.

    A classic case of abuse of market position would be WallMart who buy custom made product direct from the Asian or Indian manufacturing floor and ship directly to their US stores. They would claim to have a multi level distribution structure as product needs a degree of warehousing simply to break container loads down for smaller own store holdings, but the profit is all in the hands of one operation.

  14. Re: public vs private financing of research:

    The Sueddeutsche Zeitung published on 31 May 2016: EU ministers have agreed that by 2020 all scientific publications, which have been publicly funded (‘tax payers’ in my reading), will be made publicly available.

    (“EU-Minister haben sich darauf geeinigt, bis 2020 öffentlich finanzierte wissenschaftliche Publikationen frei zugänglich zu machen.”)

    Further: This would be a heavy blow against journals because the publishers of these journals currently charge high prices for the publication of research results.

    (“Es wäre ein schwerer Schlag gegen Fachjournale: Derzeit verlangen deren Verleger oft hohe Gebühren für eine Veröffentlichung von Forschungsergebnissen.”
    Source: Sueddeutsche Zeitung, 31 May 2016.

    While the ministers’ decision is not binding on EU countries, it is nevertheless seen as a milestone.

    (“Die Entscheidung der Minister ist zwar für EU-Staaten nicht bindend, wird jedoch als Meilenstein gesehen.”)

    Readers, please feel free to improve my translation.

  15. Further to the EU ministerial decision mentioned @65:

    Suppose the ‘milestone’ would be so big that it could be seen in Australia and the relevant ministers would adopt the associated decision. What would happen to economic research currently carried out by say KPMG, EY, Deloitte, pwc and paid for with tax payers’ money via governments?

    Well, to begin with, local councils, residents, and everybody else couldn’t be prevented from getting free access to the research, not a summary of the conclusions only. This in turn would save taxpayer (or rate payers) money and time because they wouldn’t have to go to court (and possibly lose because ‘commercial in confidence’ could overrule). This in turn could possibly reduce the popularity of spending tax money on the big accounting firms and thereby reduce income and wealth inequality (a little bit to begin with). And, and, …, and it might reduce demonstrations in front of one parliament house or another, and, … reduce expenditure on riot police, and, and, …., ?

  16. Perhaps the good professor might like to comment on your findings there, Ernestine.

    I’m reading this article by way of finding out what the basis of

    “Economists have examined the trade off between the costs and benefits of intellectual property protection and have concluded, in general, that the costs of strong forms of intellectual property protection outweigh the benefits”

    might be.

    So far it appears to me to be a very shallow series of “evaluations” heavily influenced by personal beliefs. Stiglitz for instance,

    “Joseph Stiglitz, an economist at Columbia University, and others have suggested encouraging teams of autonomous scientists to develop new breakthrough drugs by offering those that succeed big prizes.”

    ….imagines that prizes might induce innovation in place of patents, but completely overlooks the consequence of human health product failure which routinely involves massive law suits. If IP protect profits are removed then the consequences of drug failures will fall on the state, and we know how popular that is in the US. A “US National Accident Compensation Policy” would go down like a lead balloon.

    The US military operates such programmes but all participants are paid for their stage one research into now military and air force hardware development programmes. I can’t see that becoming a viable platform in the US either.

    But where a journal that claims an interest in the subject of patents going back to the 1850’s makes a closing comment such as

    ” Experiments with other forms of financing innovation could be run alongside the patent system.”

    tells me that economic writers haven’t the foggiest idea why and how invention occurs, and will ultimately have zero significant input into the nature of Intellectual Property in the future other than Copyright. Considering their platform on the subject their policy of

    “The Economist grants one-off permission for the republication of articles, … are available in both print and electronic format, and are subject to a copyright fee”

    …shows a lack of conviction. Their cheque is in the mail, I think.

  17. BilB, what do you think of the IP (various forms) associated with the financial innovations since the 1980s?

  18. @BilB
    You really should look at the Longitude Prize. Incidentally, the implementing committee did not just reward Harrison for his T3 schrinometer, a full solution. It made interim awards to him and others, including the Swiss mathematician Leonhard Euler, for a contribution to the rival astronomical method.

  19. If we are we talking here about creative accounting, Ernestine, my financial controller won’t let me participate. But if we are talking about all things EFTPOS and the like, let me think about it.

  20. I have a friend who works for IBM as a programmer. They are all encouraged to file patents. He doesn’t do it, because he quite rightly thinks that nothing he does is terribly novel. But clearly IBM is trying to game the system.

    So is the basic system fine, and its just not quite as good because of patent trolls like IBM? Of have patent trolls and the Disney’s of the world made it a net negative?

  21. @BilB

    «“The fact is that often net profits on factory price are a few percent, and patent royalties of even 1-2% can cut net profit by a large proportion”

    So every business downstream of a retailer should work for nothing»

    The manufacturing does a few percent net profit on the factory price, but that can be a large return on capital invested.

    «so the distribution chain can support a bloated bunch of executives in New York and their billion dollar lifestyle from profits of hundreds to thousands of percent, and you have the gall to suggest “IP rentiers”?????»

    That’s exactly the business model of most “tech” companies, for example Apple: they are marketing and sales operations that spend a quite small proportion of their turnover on registering patents (in a some tech companies the expense budget for salespeople is bigger than the the R&D budget); thanks to those patent they can have product manufactured by very cheap contract companies and then resell those products for many times the factory price, with the government confiscating without compensation the right of every other inventor of the same invention to sell it if they had kept it a trade secret.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s