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10.06.12

Scholars Michele Boldrin, Juan Correa Allamand, David K. Levine, and Carmine Ornaghi Suggest Abolishing All Patents

Posted in Patents at 3:23 am by Dr. Roy Schestowitz

Summary: Trade constraints are being compared to patent monopolies, arguing that they impede productivity, creativity, and innovation

OVER at the FFII’s mailing lists, Geza found some new papers that summarise recent research work. He says “there’s a brief article in the Atlantic, highlighting a working paper by Michele Boldrin and David Levine (Washington University in St. Louis), making the case (based on economic arguments) that our societies and economies would fare best if the patent system would be abolished completely.”

The article is good because the key arguments are succinct, enumerated, and well argued. Some central quotes that Geza shares are as follows:

- “The case against patents can be summarized briefly: there is no empirical evidence that they serve to increase innovation and productivity, unless the latter is identified with the number of patents awarded — which, as evidence shows, has no correlation with measured productivity.” (p1)

- “A closer look at the historical and international evidence suggests that while weak patent systems may mildly increase innovation with limited side-effects, strong patent systems retard innovation with many negative side-effects. Both theoretically and empirically, the political economy of government operated patent systems indicates that weak legislation will generally evolve into a strong protection and that the political demand for stronger patent protection comes from old and stagnant industries and firms, not from new and innovative ones. Hence the best solution is to abolish patents entirely through strong constitutional measures and to find other legislative instruments, less open to lobbying and rent-seeking, to foster innovation whenever there is clear evidence that laissez-faire under-supplies it.” (p1)

- “In less than thirty years, the flow of patents roughly quadrupled. By contrast, neither innovation nor R&D expenditure have exhibited any particular upwards trend, not to speak of factor productivity.” (p6)

- “Abolishing patents may seem “pie-in-the-sky” and there are certainly many interim measures that can be taken to mitigate the damage: properly interpreting obviousness, requiring genuine disclosure of working methods and an independent invention defense against patent infringement are useful and – among economists – relatively uncontroversial measures. But why use a band-aid to staunch a major wound? Economists fought for decades – and ultimately with great success – to abolish trade restrictions. It will not escape the careful reader that patents are very much akin to trade restrictions as they prevent the free entry of competitors in national markets, thereby reducing the growth of productive capacity and slowing down economic growth. The same way that trade restrictions were progressively reduced until reaching (almost complete) abolition, a similar (albeit, hopefully less slow) approach should be adopted to “get rid” of patents.” (p21)

The FFII folks found an extended paper. It says:

Because policy proposals are better digested and metabolized when served in the form of small pills, here is our list of small reforms that could be easily implemented.

(1) Stop the rising tide that, since the early 1980s, is both extending the set of “things” that can be patented and shifting the legal and judicial balance more and more in favor of patent’s holders.

(2) Because competition fosters productivity growth, anti-trust and competition policies should be seen as a key tool to foster innovation. This is of particular relevance for high tech sectors, from software to bioengineering, to medical products and pharmaceuticals.

(3) Free trade is a key part of competition policies hence the role that WTO-WIPO-TRIPS play should be redefined to move away from the current neo-mercantilist approach toward free trade in goods and ideas. The aim here should be that of stopping the policy of exporting our intellectual policy laws towards other countries while adopting a policy of exporting free trade and competition in innovation. This seems an urgent goal because, within a couple of decades, the “balance of trade in ideas” between US+EU and Asia may easily reverse. At that point the temptation to engage in “mercantilism of ideas” may well affect the now developing Asian countries, leading to a general increase in IP protection worldwide.

(4) Cross industry variation in the importance of patents suggests we may want to start tailoring patent’s length and breadth to different sectorial needs. Substantial empirical work needs to be done to implement this properly, even if there already exists a vast legal literature pointing in this direction.

(5) Reversing the burden of proof: patents should be allowed only when monopoly power is justified by evidence about fixed costs and actual lack of appropriability. The operational model should be that of “regulated utilities”: patents to be awarded only when strictly needed on economic grounds. This requires reforming the USPO, which is urgently needed in any case.

(6) Prizes and competition. An interesting approach is that of operating to change the role that the NSF and the NIH play in fostering innovation. The basic goal, in this case, is that of reversing the principle according to which federally financed investigation can lead to private patents. As a first step we would advocating going back to the old rule according to which the results of federally subsidized research cannot lead to the creation of new private monopolies but should be available to all market participants. This reform would be particularly useful for the pharmaceutical industry.

(7) With regards to the latter, we advocate reforming pharmaceutical regulation to either treat stage II and III clinical trials as public goods (to be financed by NIH on a competitive basis) or by allowing the commercialization (at regulated prices equal to the economic costs) of drugs that satisfy the FDA requirements for safety even if they do not yet satisfy the current, over-demanding, requisites forproving efficacy. It is ensuring the efficacy—not the safety—of drugs that is most expensive, time consuming and difficult. All the usual mechanisms of ensuring the safety of drugs would remain firmly in place. While pharmaceutical companies would be requested to sell new drugs at “economic cost” until efficacy is proved, they could start selling at market prices after that. In this way, companies would face strong incentives to conduct or fund appropriate efficacy studies where they deem the potential market for such drugs to be large enough to bear the additional costs. At the same time this “progressive” approval system would give cures for rare diseases the fighting chance they currently do not have. This solution would substantially reduce the risks and cost of developing new drugs.

(8) If this progressive approval approach works for rare diseases, there is no reason is should not be adopted across the board. The current system favors a small number of blockbuster drugs that can be sold to millions of patients. The coming revolution in medicine will rely on carefully targeting hundreds or even thousands of drugs to the correct patients. But lawmakers must first usher in a new system that makes developing these precision treatments possible. The regulation reform we are suggesting would be a first important step to achieve such goal.

“Finally,” writes a reader, “software patents are a particularly egregious and bad form of intellectual property for a sector where we also have very detailed micro evidence about the role of patents in (not) promoting innovation (see, e.g., Bessen and Meurer 2008 and references therein). The same arguments are likely to apply tobio-engineering and genetic research at large. The goal of policy, in these cases, should be just that of slowly but surely decreasing the strength of intellectual property interventions.”

“I find the target of abolishing all patents very appealing,” writes Geza. “Let business methods, software, and genetic patents go first, but make sure that we get rid of the whole system in the end.

“I like their way of phrasing the case for abolishing patents as being in favor of “free trade in ideas” and “de-regulating creativity”: that’s a new angle in the debate that should make it possible to convince some free-trades and market-liberals that supporting the patent system is not consistent with their basic assumptions as it means supporting government interference…”

Finally, people should realise that not only the USPTO is a friend of monopolies and not of the common man, unless he (or she for a woman) is a patent lawyer. Universities help support this strong allegation that can empower society by moving it forward, well past patents.

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