In Bessen & Meurer latest patent study ("Do patents perform like property?," Academy of Management Perspectives, pp. 8-20 (August 2008)), the authors conclude: "intellectual property rights have at best only a weak and indirect effect on economic growth" and "The direct comparison of estimated net incentives suggests that for public firms in most industries today, patents may actually discourage investment in innovation."

The entire conclusion is below. See also Keith Sawyer's post, Do Patents Increase Innovation?, who note: "In 1999, for example, the total profits from patents in all U.S. public firms (excluding pharma) was about $3 billion, but their litigation costs associated with those patents were a whopping $12 billion!"

The historical evidence, the cross-country evidence, the evidence from economic experiments and estimates of the net benefits of patents all point to a marked difference between the economic importance of general property rights and the economic importance of patents or intellectual property rights more generally. With the cross-country studies in particular, the quality of general property rights institutions has a substantial direct effect on economic growth. Using the *same* methodology and in the *same* studies, intellectual property rights have at best only a weak and indirect effect on economic growth.

The research also suggests a reason why patents differ from general property rights in motivating economic growth overall: the positive effects of patents appear to be highly contingent. Differences in technology and industry seem to matter a lot for twentieth century R&D managers and also for the innovative performance of nineteenth century world's fair exhibitors. Some results from the cross-country studies suggest that less developed countries have a harder time realizing benefits from patents or that countries that participate actively in international trade may benefit more.

Some of these differences arise because of differences in the relative costs and effectiveness of alternatives to patents. Patents may contribute more to economic growth in the pharmaceutical industry than they contribute in electronics industries because the latter can more effectively earn returns on innovation through lead time advantage, sales of complementary products and services, etc. Other differences may arise because of subtle differences in patent institutions. During the nineteenth century, the US patent institutions performed differently (and perhaps better) than their British counterparts. Patents are likely to work better in the pharmaceutical industry because patents on chemical entities have much sharper boundaries than, for example, patents on software.

Of course, the economic effectiveness of all forms of property depends on details of the supporting institutions this is evident from the disparate growth paths of Soviet Bloc economies. But the economic effectiveness of patents may be much more sensitive to the details of the relevant institutions than are general property rights. Perhaps this is because patent law may be much more specialized, complex and sophisticated than, say, real property law and, so, effective institutions may be more difficult to develop and maintain.

In any case, the empirical economic evidence strongly rejects simplistic arguments that patents universally spur innovation and economic growth. The direct comparison of estimated net incentives suggests that for public firms in most industries today, patents may actually discourage investment in innovation.

When I saw the title of this Cato podcast--"Intellectual Property Versus Reason" (October 20, 2008)--I was hopeful and interested. Then I noticed it's an interview with the Nobel-winning, er, physicist Robert B. Laughlin, author of the new book, The Crime of Reason and the Closing of the Scientific Mind. Physicists and engineers are notoriously scientistic (see Yet More on Galambos; also Galambos and Other Nuts, Libertarian Activism--comments and C.P. Snow's "The Two Cultures" and Misesian Dualism). But, still, the title implied Laughlin thinks IP is, well, unreasonable (Cato scholars' IP positions seem to be mixed and largely utilitarian).

As I listened to the 16-minute podcast, I had a succession of impressions. For the first 6 or so minutes, I could not tell whether Laughlin was pro- or anti-IP. I know a bit about IP but I was not even sure what he was talking about much of the time. Oh, Laughlin is articulate enough--he speaks slowly, ponderously, and often pauses dramatically, as if struggling to pick just the right Deep Thoughts in response to Serious Questions--and even pronounces a French word or two properly. But soon it becomes obvious that his views on IP are just a mess, and he is, indeed, infected by the scientistic virus that physicists are susceptible to.

It soon become clear that Laughlin believes there is a tension between economic prosperity (which requires IP) and "human rights" (in particular the "right to learn," which IP impinges on). At first he seems to be very concerned that human rights will "give way" to IP and economic prosperity--even pessimistic about this--even while he himself seems to grant that we ought to be concerned about prosperity--and, thus, IP. So he's pessimistic that IP is infringing the human right to learn, yet he not only thinks nothing can or will be done to stop this--after all, we've now entered the information age, where IP rights are even more important to economic prosperity--he even seems to think that we should not abolish IP. We need to "supply the data" to "the legislature" (Congress), and achieve the right "balance", even though he admits he doesn't know what the right solution even is--it's "above my pay grade." Naturally, then, he doesn't blame the Congresscritters for how they have voted to date on IP issues, whether pro or con; their efforts are sincere and based on the best data possible. One wonders why he is depressed, or why he even wrote a book. I guess Nobel laureates can sell just about anything they slap their name on, which is reason enough.

I can't bring myself to read his book now, but from this interview it seems apparent that he holds a number of erroneous views: that both the state and the democratic process are legitimate, and that legislation is the right way to make law; that IP is pro-property rights; that IP is necessary for and promotes prosperity; that there is a conflict between human rights and economic rights; not to mention his implicit scientism. In his confused attempt to weigh in on legal and economic and policy issues he reminded me a bit of physicist Fritjof Capra's New Agey The Tao of Physics (hence the title of this post).

A few other things to note: from the Cato description of his book:

"Though we may feel inundated with information today, Nobel laureate Robert Laughlin argues that intellectual property laws and government security demands are increasingly restricting access to the most useful information. Government rules and businesses' legal pressures to sequester information threaten the development of new knowledge, he says. The rights of free people to investigate their world are threatened. Laughlin's fresh perspective and light, sometimes whimsical, bent do not mask the central warning of his readable book: that we risk bequeathing our heirs a world where knowledge is criminalized and our intellectual tradition of unfettered inquiry is lost."

So he sees IP as "criminalizing" knowledge ... yet is not completely opposed to it. So we need only a reasonable degree of criminalization of knowledge. I guess Laughlin chooses IP over reason... sometimes.

Publishers Weekly (from the Amazon.com listing) identifies some of the weaknesses in Laughlin's book:

"The provocative premise of this short book is that even as we appear to be awash in information, governments and industry are restricting access to knowledge by broadening the concept of intellectual property to include things as diverse as gene sequences and sales techniques. According to Laughlin, the right to learn is now aggressively opposed by intellectual property advocates, who want ideas elevated to the status of land, cars, and other physical assets so the their unauthorized acquisition can be prosecuted as theft. With examples drawn from nuclear physics, biotechnology and patent law, Laughlin, a Nobel laureate in physics, paints a troubling picture of a society in which the only information that is truly valuable in dollars and cents is controlled by a small number of individuals. But while Laughlin poses urgent questions, he provides neither in-depth analysis nor potential solutions. Many intriguing arguments--for example, that electronic technologies such as the Internet, which inundate us with useless information, are not instruments of knowledge dissemination at all but agencies of knowledge destruction--are offered but none are usefully explored.

So Laughlin views IP as "restricting access to knowledge"--if he instead viewed IP as an infringement of property rights, he would have a harder time making the mistake of thinking IP is on the side of economic prosperity and property rights. The "right to learn," whatever that is, is not any primary kind of right, and would seem to be jeopardized by government education and propaganda more than by patent and copyright. Again, IP undercuts and infringes property rights, and harms innovation (see here, here, here, here)--if he realized this, he would not set up the false alternative of prosperity versus human rights. And the idea that IP is more important in the information age is also flawed.

I love Scribd--what a cool new service for online books.

From Patently-O:

Does the Piracy Paradox apply for Patents?

"A 2006 paper by Kal Raustiala (UCLA) and Chris Sprigman (UVA) titled the Piracy Paradox discusses intellectual property and the fashion industry. The authors conclude that the legal ability of manufacturers to create knock-off versions of fashion designs actually promotes innovation and investment in that industry. Similar phenomena have been explained in other industries. In music, for instance, some studies have shown that peer-to-peer file sharing of copyrighted work actually increases sales because of the increased popularity of the artist. Since the dawn of radio, record companies have paid stations to broadcast their music - even though the broadcast would be considered infringement.

"My question is whether there are patent specific examples of this process going on? Are there times when 'piracy' of a technology actually encourages further R&D?"

See the Patently-O post Shaping Nuanced Patent Injunctions: Broadcom v. Qualcomm, discussing a case in which the Federal Circuit "affirmed a permanent injunction against Qualcomm - finding that the district court acted within its equitable discretion and properly followed the injunctive relief guidelines set forth by the Supreme Court in eBay v. MercExchange (2006)."

The post notes: "This decision is insightful in how it moves the proper focus from whether an injunction should issue to the more nuanced issues of how to shape the injunction in a way that best serves the public interest while still protecting property rights."

Hmm, public interest "versus" property rights? How anyone can think patent law is compatible with property rights is beyond me.

Since IP causes only about $40 billion or so a year damage to the economy, I hereby withdraw my objections. That amount is obviously trivial, in view of trillion-dollar bailouts, trillion-dollar wars, scores of trillions of dollars of debt. And as for the $80 billion tax-funded innovation prize fund--chicken feed. Let 'er rip!

Now here's a sensible approach!

An Austrian Bailout Plan

by Mark Thornton

Austrian Bailout Package--Part A

1. Suspend Basil II regulations (to at least 4/2/09)
2. Cancel FDIC insurance on all demand deposits after 1/1/09.
3. Increase FDIC premiums on short term time deposits of less than one year.
4. Make interest earned (starting 1/1/09) on bank time deposits and non-governmental, non-agency, and non-authority bonds tax free (not demand deposits and MMMF).
5. Convert Fannie Mae and Freddie Mac's status from conservatorship into receivership.
6. Convert AIG's status from government owned to receivership.
7. Cancel the Primary Dealer Credit Facility (PDCF) and the Term Securities Lending Facility (TSLF) at the end of the announced program (January 30, 2009).
8. Announce that the Federal Funds rate will be allowed to "float" at market rates starting January 30, 2009.
9. Announce that the Federal budget will be prorated beginning with the fiscal year starting 10/1/08 including all defense spending and transfer payments.
10. Restore constitutional monetary status to gold and silver to act as an alternative medium of exchange (no capital gains taxes).

So America is not content to be the World's supercop in military matters. It's bad enough we extend our anti-trust and tax and drug laws extraterritorially. Senate Moves To Protect U.S. IP Overseas reports:

Senate Finance Committee Chairman Max Baucus (D-MT) and Sen. Orrin Hatch (R-Utah) introduced the International Intellectual Property Protection and Enforcement Act of 2008, legislation meant to crack down on the theft of U.S. intellectual property around the world.

The bill would compel the U.S. Trade Representative to develop action plans for countries on the piracy "Priority Watch List," and empower the president with enforcement tools if corrective actions are not taken. It would also ensure the placement of officials at foreign embassies tasked with enforcing American IP rights.

(See also my post IP Imperialism (Russia, Intellectual Property , and the WTO))

Uh-oh: I guess poor Australia--which is considering overhauling its patent laws to reduce the harm on innovation--is about to be in the US Government's crosshairs!

Oh well, no harm, no foul. All's well that ends well, and all that.

Interesting post by Alex Iskold, Patent Crisis and The Age of Open Source Ideas.