Uncertain IP leads to less innovation
We've been debating patents on the blog recently. Charlotte wrote about a really cool experiment that appeared to show that IP limits follow-on innovation.
I previously wrote that the follow-on benefits of innovation were on net positive, because the effect of bringing what would otherwise be business secrets into the open outweighs the cost of firms not being able to build on other firms innovations for free.
A newly published paper takes on another angle: collaboration. Entitled "R&D Collaboration with Uncertain Intellectual Property Rights" (full pdf of 2011 version) and by authors Dirk Czarnitzki, Katrin Hussinger, and Cédric Schneider it argues that firms shy away from working with other businesses when their intellectual property rights are less clear.
Patent pendencies create uncertainty in research and development (R&D) collaboration, which can result in a threat of expropriation of unprotected knowledge, reduced bargaining power and enhanced search costs. We show that—depending of the type of collaboration partner and the size of the company—uncertain intellectual property rights (IPRs) lead to reduced collaboration between firms and can, hence, hinder knowledge production.
Among firms with patent applications the average probability to collaborate with a competitor amounts to 13%. The probability of collaborating with a competitor decreases by 3% points for these firms if the share of pending patents in the patent application stock increases by one standard deviation at the mean. Thus, the average probability of collaborating with firms in the same industry is reduced by about 23% (=3/13), which is a sizeable impact.
Take that, Charlotte!
Maybe we should like patents
For a long time I was very sceptical of the benefits of patents. For one thing, they seemed to interfere with other types of property—Apple's patents over certain shapes for phones mean Google cannot use its factories, materials, etc. in certain ways. For another, I coincidentally had come across work suggesting their benefits are overstated, including Against Intellectual Monopoly (appropriately available in full online) by Michele Boldrin and David K. Levine.
But three recent papers exploiting a novel source of data have made me reconsider, since they throw cold water on one of the popular alternatives to patents: innovation prizes. All three are by B. Zorina Khan, an economics Professor at Bowdoin College and fellow at Stanford University's august Hoover Institution.
The first looks at annual industrial fairs in 19th century Massachusetts and finds that (relative to patents awarded over the same period) prizes were mainly used for advertising purposes, were awarded unsystematically and unpredictably, and did not vary in line with how useful or popular an invention or innovation ended up being. What's more, prizewinners were typically from a more privileged class than patentees. This all implies that patents are more market driven and better at incentivising creative innovation, Khan says.
The second looks at similar data (American Institute of New York annual fairs) from a different angle. One argument against patents is that they limit what others can do on top of a given innovation, or how much they can be inspired by a particular breakthrough, because they might have to license the patent or risk infringing it. One argument in the other direction is that patents allow people to bring their information out into the open because others will not use it to jump ahead, so it encourages openness. What's more, all of their info surrounding the innovation is written down and easy to find.
Khan finds that the second effect predominates; patents encourage 'spillover' innovation more than prizes:
In keeping with the contract theory of patents, the procedure identifies high and statistically significant spatial autocorrelation in the sample of inventions that were patented, indicating the prevalence of geographical spillovers. By contrast, prize innovations were much less likely to be spatially dependent. The second part of the paper investigates whether unpatented innovations in a county were affected by patenting in contiguous or adjacent counties, and the analysis indicates that such spatial effects were large and significant. These results are consistent with the argument that patents enhance the diffusion of information for both patented and unpatented innovations, whereas prizes are less effective in generating external benefits from knowledge spillovers. I hypothesize that the difference partly owes to the design of patent institutions, which explicitly incorporate mechanisms for systematic recording, access, and dispersion of technical information.
Finally, her 2013 paper “Trolls and Other Patent Inventions: Economic History and the Patent Controversy in the Twenty-First Century” (the argument is given in less length in a Cato Unbound essay) argues that if you take a long historical view, current patent controversies around non-practising entities, patent thickets, litigation and so on are not new. She says they are part of a well-functioning and successful intellectual property system.
So maybe we should like patents. After all, we support regular property rights because the institution has been proven to lead to a wealthy, successful society, even if messed with substantially. If patents are the best tool we have for generating innovation—a key ingredient of continued social progress—then we should support them too.
Copyright reform is not a joke
Yesterday was a good day for mischief-makers, for it saw an amendment in the law to permit the use of copyrighted material 'for the purposes of parody, caricature or pastiche' without having to first seek permission from the rights holder.
Indeed as if to celebrate, the infamous Cassetteboy released a (NSFW!) glorious mash-up as a homage to our dear PM in the form of Cameron's Conference Rap.
Given so much of the great British humour, it's bizarre to think that permissionless piss-taking has up to now been verboten. Tools like parody and caricature are part of our cultural heritage, used to make important political statements and hold the powerful to account just as much as they are employed for light relief. Nevertheless sketchwriters for the BBC and student drama societies alike have had think carefully about their work or else risk court action, whilst takedown and infringement notices litter the remix, remake channels of YouTube.
This exemption allows copyright law to better reflect people's actual habits and cultural opinions. It also lends intellectual property regimes a greater overall legitimacy, which could prove valuable when encouraging behavioural changes and in tackling issues like piracy.
It will enhance our cultural commons, thanks to the new (and newly-legitimized) avenues of expression and unleashed creativity. Lifting the restriction on social and commercial innovation will also yield economic benefits, with the government's Hargreaves Review suggesting that it could boost the economy by between £130-650m per annum.
Works will still be subject to the 'fair dealing' criteria, which only allows for a limited amount amount of a copyrighted material to be used. No doubt this will prove problematic at times- for example, do Downfall parodies involve only a limited amount of the original film? Copyright holders will still also be able to legally challenge a work for infringement, then requiring the artist to prove in court that their work is in fact actually side-splittingly hilarious or a devastating work of satire.
Depressingly, as insignificant as the exemption seems, it is one of the very few pieces of sensible copyright policy to emerge in recent years (and it still took the ORG 9 years of campaigning to achieve it). Modern copyright law is beyond a parody. It is overlong, over-broad, a drain on resources and a chill on innovation. It is no longer a vehicle to foster creativity, but a monster caused by rent-seeking and lobbying by vested interests. And the excessive, damaging ideas - from extending copyright further, to imposing harsher criminal sanctions on infringers and threatening search engines with anti-piracy legislation - continue.
There are a number ways in which we could radically reform copyright law whilst maintaining the commercial incentives to create (many of which are for another blog!) However, given the number of international agreements on intellectual property the UK is signed up to, the gradual expansion of 'fair dealing' exceptions (say, to cover all non-commercial uses of copyrighted work) could be the most politically viable way of reducing the deadweight loss caused by current copyright laws.
Even this seems like a long-shot though, particularly given how long it has taken to get such a reasonable exemption applied. Copyright laws might be a farce, but they certainly aren't very funny.