From the NBER Digest:

COUNTERFEITERS: FOES OR FRIENDS? Yi Qian

Counterfeits ... steal demand from low-end authentic products, but [have] positive spillover effects for high-end authentic products.

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In fiscal 2009, the U.S. Customs and Border Protection seized more than $260 million worth of counterfeit goods, with counterfeit footwear accounting for 40 percent of the total seizures. Counterfeit footwear has topped the seizure list of the customs service for four years. How does the existence of such counterfeits affect the sales of authentic products?

In Counterfeiters: Foes or Friends? (NBER Working Paper No. 16785), author Yi Qian analyzes product data from Chinese shoe companies over 1993-2004. She can study the impact of policy changes, such as the 1995 change in government enforcement efforts in monitoring footwear trademarks in China. That change had different effects on counterfeit entry for branded companies with varying degrees of closeness to the Chinese government.

Qian finds that counterfeits have positive advertising effects for the brand of shoes they copy. However, they have negative substitution effects for the authentic products, driving buyers away from the authentic shoe to the counterfeit one. For sales of high-end authentic products, the positive advertising effect dominates the substitution effect. For sales of low-end authentic products, the negative substitution effect outweighs the advertising effect. All of the effects last for a few years before leveling off. And, these different effects for different products reinforce incentives for authentic producers to innovate and to move upward in the quality portfolio. Finally, after the entry of counterfeiters, market shares for the higher quality products increase while those of the lower end products decline.

Qian tests these results by conducting some surveys and finds similar effects regarding the purchase intent of high-end, medium-end, and low-end branded products. Her subjects' responses suggest that counterfeits signal brand popularity, at least to some consumers. Counterfeits thus appear to steal demand from low-end authentic products, but their presence has positive spillover effects for high-end authentic products.

--Lester Picker

link to the paper

Another review of Against Intellectual Monopoly by Richard Gilbert in the Journal of Economic Literature.

With apologies to all of our legitimate commentators: links are now banned in comments. If you submit a comment with a link it will not be processed. I am sorry that is come to this, but it is probably the first step that is needed to reduce the spam in the comments.

A paper Peter J. Huckfeldt and Christopher R. Knittel examining generic entry. Not a great advertisement for patents:

We study the effects of generic entry on prices and utilization using both event study models that exploit the differential timing of generic entry across drug molecules and cast studies. Our analysis examines drugs treating hypertension, high blood pressure, type 2 diabetes, and depression using price and utilization data from the Medical Expenditure Panel Survey. We find that utilization of drug molecules starts decreasing in the two years prior to generic entry and continues to decrease in the years following generic entry, despite decreases in prices offered by generic versions of a drug. This decrease coincides with the market entry and increased utilization of branded reformulations of a drug going off patent. We show case study evidence that utilization patterns coincide with changes in marketing by branded drug manufacturers. While the reformulations---often extended-release versions of the patent-expiring drug---offer potential health benefits, the FDA does not require evidence that the reformulations are improvements over the previous drug in order to grant a patent. Indeed, in a number of experiments comparing the efficacies of the patent-expiring and reformulated drugs do not find statistical differences in health outcomes calling into question the patent-extension policy.

The Americans are trying to force ACTA - think super-DMCA - down the throat of Europe. While it's been watered down a bit, it's still quite obnoxious, and almost bound to choke off innovation. Via Hinnerk Gnutzmann a group of European academics, largely lawyers, has a petition against the current form of the ACTA. It's quite a moderate document - it conceded the basic usefulness of ACTA, which I view as very counterproductive - but still represents a step in the right direction. If I were a European academic I would sign it.

As do Joel and his coauthors. I've long wondered about the role of "mechanics" and other tinkerers - if you ask me why not the industrial revolution in Rome my answer would be: not enough of the low level tinkerers needed to make technology take off. I'm glad to see some careful research into this.

The Rate and Direction of Invention in the British Industrial Revolution: Incentives and Institutions by Ralf Meisenzahl, Joel Mokyr

Abstract:

During the Industrial Revolution technological progress and innovation became the main drivers of economic growth. But why was Britain the technological leader? We argue that one hitherto little recognized British advantage was the supply of highly skilled, mechanically able craftsmen who were able to adapt, implement, improve, and tweak new technologies and who provided the micro inventions necessary to make macro inventions highly productive and remunerative. Using a sample of 759 of these mechanics and engineers, we study the incentives and institutions that facilitated the high rate of inventive activity during the Industrial Revolution. First, apprenticeship was the dominant form of skill formation. Formal education played only a minor role. Second, many skilled workmen relied on secrecy and first-mover advantages to reap the benefits of their innovations. Over 40 percent of the sample here never took out a patent. Third, skilled workmen in Britain often published their work and engaged in debates over contemporary technological and social questions. In short, they were affected by the Enlightenment culture. Finally, patterns differ for the textile sector; therefore, any inferences from textiles about the whole economy are likely to be misleading.

Also only a paywall copy.

Petra and her coauthors continue to acquire evidence about the efficacy of patents.

Did Plant Patents Create the American Rose? by Petra Moser, Paul W. Rhode - #16983 (DAE PR)

Abstract:

The Plant Patent Act of 1930 was the first step towards creating property rights for biological innovation: it introduced patent rights for asexually-propagated plants. This paper uses data on plant patents and registrations of new varieties to examine whether the Act encouraged innovation. Nearly half of all plant patents between 1931 and 1970 were for roses. Large commercial nurseries, which began to build mass hybridization programs in the 1940s, accounted for most of these patents, suggesting that the new intellectual property rights may have helped to encourage the development of a commercial rose breeding industry. Data on registrations of newly-created roses, however, yield no evidence of an increase in innovation: less than 20 percent of new roses were patented, European breeders continued to create most new roses, and there was no increase in the number of new varieties per year after 1931.

Sorry, this is behind the NBER paywall and I can't locate a free copy.

"Europe's highest court has been urged to declare stem cell patents immoral and therefore illegal. Researchers warn this will destroy prospects for stem cell treatments in Europe, driving potential investors to patent-friendly China, Japan and the US." The article is here.

Wow! Patent friendly China....The rest of the article doesn't give you a lot of confidence in "scientists."

Dear Professors Boldrin and Levine,

We are writing to you regarding your book, Against Intellectual Monopoly.

We have both enjoyed, and been stimulated by, your book, and are in considerable agreement with your overall thesis that intellectual property protection is not conducive to technological innovation, at least not in the way claimed in standard economics. One of us has found it an invaluable help in teaching and research.

However, we would like to bring to your attention some facts about the invention of the radio, which you discuss in chapter 8 of the book. In it you refer to Hong's work and mention the roles of Lodge, Tesla and Popov in undermining Marconi's claim to be the inventor of the device, but not the role of Jagadis Chunder Bose.

>From the very beginning Marconi was mired in controversy regarding his claim. The question was reconsidered in the early 1990s by Phillips (1993), who concluded that Marconi did not invent the detector that he claimed to have developed. However, Phillips was unable to locate the true inventor of the so-called "Italian navy coherer". The mystery was resolved in a paper by Probir Bandyopandhyay, who provided convincing evidence that the real inventor of this device was Jagadis Chunder Bose, Professor of Physics at Calcutta University (Bandopadhyay, 1998). The device is described in a paper that appeared in the Proceedings of the Royal Society (Bose, 1899). In fact, somewhat earlier, Bose had developed what seems to be the world's first solid state diode detector for radiation and presented his findings at the Royal Society, London, on January 28, 1897. A report of this presentation appeared in the Proceedings of the Royal Society (Bose, 1897).

The centennial of this last paper was celebrated in a special section attached to the special edition of the proceedings of the Institute of Electrical and Electronic Engineers commemorating the fiftieth anniversary of the invention of the transistor (IEEE, 1998). The papers by Bose, as well as that of Phillips, are reproduced in that publication. A brief summary of these developments appears in Mervis and Bagla (1998).

We find it extraordinary that Hong is apparently unaware of the IEEE publication. Although Hong does cite Phillips's paper, we find that he does so in a somewhat misleading way and makes only cursory references to Bose. In particular, he does not refer to the crucial papers of Bose cited above.

We hope you find these observations useful. We believe that they not only serve to debunk the claims of Marconi's priority, but also to provide another illustration of the fact that inventions do occur without the protection of intellectual property.

Sincerely yours,

Samir Bose Professor Emeritus Department of Physics

Amitava Krishna Dutt Professor of Economics and Political Science Department of Political Science

University of Notre Dame, Notre Dame, IN 46556

References

Bandyopadhyay, Probir (1998). "Sir J. C. Bose's diode detector received Marconi's first transatlantic wireless signal of December 1901 (The "Italian Navy coherer" scandal revisited), in IEEE (1998).

Bose, Jagadis Chunder (1897). "On the selective conductivity exhibited by certain polarizing substances", Proceedings of the Royal Society, vol. LX, no. 366, 433-36, reprinted in IEEE (1998).

Bose, Jagadis Chunder (1899). "On a self-recovering coherer and the study of cohering action of different metals", Proceedings of the Royal Society, vol. LXV, no, 415, 165-72, reprinted in IEEE (1998).

Institute of Electrical and Electronic Engineers (1998). Proceedings of the IEEE, Special Issue: 50th anniversary of the transistor, including a special issue section: Centennial of semiconductor diode detector, January.

Mervis, Jeffrey and Bagla, Pallava (1998). "Bose credited with key role in Marconi's breakthrough", Science, Vol. 279, p. 476.

Philips, Vivian J. (1993). "The Italian navy coherer affair: a turn of the century scandal", Proceedings of the IEEE, Series A, vol. 140, no. 3, 175-85, reprinted in IEEE (1998).

John Bennet draws our attention to a blogpost by Felix Salmon at Reuters.It's about a report by "Joe Karaganis and a big team of international researchers" which unfortunately I seem to be unable to access, at least without paying a fee. The report debunks all the made-up numbers used by the big media firms to direct U.S. antipiracy policy. The blog post is worth reading, and post a comment if you can figure out how to access the report. (There is link to scribd, but that site appears to be unusable.)

Some links:

from Michael Hills (Please note, the download link will expire after 120 hours from now or after 2 attempts, which ever event happens first.) the link works and I now have a copy - very good report

John Bennett gives a link to the movie.

Mike Masnick's blog post