State of Innovation

Patents and Innovation Economics

Patents: Monopoly or Property Right a Testable Hypothesis

It is common for people and economists to state that patents are a monopoly.  Because patents are a monopoly, it is argued that they negatively affect the pace of innovation and slow down the diffusion of inventions.  The only redeeming feature of patents they concede is that if provides a profit incentive to invent, but then it inhibits follow on inventions and the dissemination of knowledge.  If this thesis is correct, it should be testable.  Let’s test this hypothesis.


1) Countries with strong patent systems should innovate less than countries with weak patent systems.

2) Countries with strong patent systems should have slower dissemination of new technologies than those countries with weak patent system.


1) Countries with the strongest patent systems should innovate more than countries with weak patent systems.

2) Countries with strong patent systems should have faster dissemination of new technologies than those countries with weak patent system.

Let’s take a look at the facts, according to the World Intellectual Property Organization (WIPO),  the top ten most innovation countries and the bottom 10 countries for 2012 are:

Top 10

1. Switzerland

2. Sweden

3. Singapore

4. Finland

5. United Kingdom

6. Netherlands

7. Denmark

8. Hong Kong (China)

9. Ireland

10. United States of America


Bottom 10

132. Syrian Arab Republic

133. Pakistan

134. Cote d’Ivoire

135. Angola

136. Togo

137. Burundi

138. Lao PDR

139. Yemen

140. Niger

141. Sudan


In a report from National University of Singapore they show a chart of the Fraser index vs. Ginarte-Park index.  The Fraser Index is a ranking of economic freedom and the Ginart-Park index is a ranking of patent strength.  The chart shows an almost perfect correlation between the two.  For those of you who are not familiar with economic freedom indices, there are several and they all show that economic freedom correlates positively with economic growth, wealth, education access, health, longevity, the environment, civil rights, etc.

They also had a couple of charts for the countries with the strongest patent systems for four different years and those with the weakest patent systems.  I do not know all the countries that were included in this survey.

Top countries

1980 1985 1990 1995
U.S.A. 39.30 U.S.A. 39.06 U.S.A. 39.06 U.S.A. 42.75
Netherlands 28.20 Belgium 32.23 Belgium 36.22 Netherlands 41.36
Switzerland 28.12 Netherlands 31.47 Netherlands 35.22 Denmark 41.26
Germany 28.01 Switzerland 30.55 U.K. 33.57 Finland 41.01
Japan 27.14 Germany 28.73 Germany 33.14 U.K. 40.15


Bottom countries

1980 1985 1990 1995
Nicaragua 2.38 Nicaragua 2.38 Guyana 3.17 Niger 5.38
Peru 2.22 Bolivia 2.30 Pakistan 3.17 Guatemala 5.10
Guatemala 1.90 Guyana 1.69 Jordan 2.95 Nicaragua 5.00
Guyana 1.78 Guatemala 1.50 Guatemala 2.15 Rwanda 4.64
Jordan 1.72 Peru 1.31 Peru 1.73 Zaire 3.51


If we examine the first postulate, does it appear the most innovative countries have the strongest patent systems or the weakest patent system?  Which countries do you think have the strongest patent systems – the USA, Singapore, Switzerland or Niger, Pakistan, Sudan?  It is clear that the most innovative countries according to the WIPO survey have the strongest patent systems.  If we look at the charts from the National University of Singapore (NUS) we see those countries with the strongest patent systems are clearly the most innovative.  Although the WIPO data and the NUS data are from different time frames we see some overlap between those countries with the strongest patent systems (NUS) and the most innovative (WIPO) and the same is true for the weakest and least innovative.

If we examining the second postulate, does it appear that the countries with the most technology diffusion have the strongest patent systems or the weakest patent system?  Which countries do you think have the most technology diffusion – the USA, Singapore, Switzerland or Niger, Pakistan, Sudan?  It is clear that those countries with the strongest patents have the most technology diffusion.

The macroeconomic evidence does not support the thesis that patents are a monopoly.  The data shows the exact opposite of what this theory predicts.


The empirical evidence is overwhelming that patents are a PROPERTY RIGHT not a MONOPOLY.


I have written extensively on whether the defining characteristics of a patent are consistent with the definition of a monopoly or the definition of property rights.  For instance see:

Monopoly/Rent Seeking vs. Property Rights/Intellectual Property.

This post explains the characteristics of a monopoly and a property right and poses three questions to show the difference.  Patents fit all the characteristics of a property right and none of a monopoly.  Note that professional license, such as a law license has some of the characteristics of a monopoly.

More on the Myth that Patents are Monopolies.

This post contains a number of quotes from philosophers explaining that patents are not monopolies.

 Property Rights, Possession and Objects

This post explains the difference in the concepts of property rights, possession, and objects.  Most economists and patent detractors confuse these concepts.  The origin, definition, and legal basis of property right are explained.

 The Myth That Patents are a Monopoly

This post compares the definition of a monopoly to the rights obtained with a patent.  It shows that the rights obtained with a patent do not confer a monopoly.


The only way to suggest that patents are a monopoly is define “market power” so broadly that any property rights confer market power.  I admit that I reject this argument.  A property right is not a monopoly and this is an attempt by people with a political agenda to attack the concept of property rights.

PATENTS are PROPERTY RIGHTS under the law, by definition, and according to all statistically significant macro-economic evidence.  People who suggest otherwise are pushing a political agenda or do not understand the definition of the words monopoly and property rights.


October 8, 2012 - Posted by | -Economics, -Law, -Philosophy, Innovation, Patents | , , , ,


  1. Those that seek to dismantle intellectual property rights and patents in particular are little interested in economic advancement. Such radicals are more concerned with exploitation of the earth and equal sharing of resources than the betterment of mankind. It would probably suit them just fine if mankind slipped back a few notches and closer to their over idealized vision of being one with nature. The fact is these caring individuals care little more for the average human being than they do for a squirrel and often less.

    As far as property rights go, I am mostly a Lockian at heart. They are natural and developed as a natural part of man’s need to survive and thrive. They started with the first man made tool and greatly expanded with agriculture. It was only fitting that the Industrial Revolution drove them into the realm of intellectual property. To deprive mankind of this advancement is to push him from being worthy of his labor to a time when violence and force determined who owned what. Of course that is what those who would abolish patents seem to want.

    Comment by The Conservative Mind | October 14, 2012 | Reply

  2. What is surprising is the Cato Institute and the Von Mises group are anti-patents (IP)

    Comment by dbhalling | October 14, 2012 | Reply

  3. No surprise.

    All humans are irrational (at least some of the time –and especially on election day).

    The Cato Institute and the Von Mises group are composed of humans.

    Draw your own conclusions.

    Comment by step back | October 17, 2012 | Reply

    • Stepback,

      The question is not whether people are irrational at times, it is whether they are irrational in the face of all evidence. This particularly galling when they profess they follow reason and logic – Like Reason Magazine

      I expect from the groups who admit they are anti-reason, the socialist, marxists, anti-property rights groups. Note that Von Mises is hard to categorize there. They attempt to combine Christianity with the free market and reason.

      Comment by dbhalling | October 17, 2012 | Reply

  4. “they are irrational in the face of all evidence”

    Who was that US Congressman who famously said, “Stop trying to confuse me with facts”?

    (Probably more than one Congress-critter said or acted that way.)

    Comment by step back | October 17, 2012 | Reply

  5. Patents are indeed a monopoly, not a property right. You are just about the only lawyer that says this – stop it! Your persistence in asserting that patents are a property right are idiotic. Patents eventually expire. Do you lose ownership (or title) to your home (where the mortgage is paid off) after a set period of time? – of course not. It cannot be said that patents are a “property right” like owning a home or some other tangible thing.

    Comment by Beaker | October 23, 2012 | Reply

  6. What’s wrong with saying that patents are a monopoly anyway? So what, if they are? If the monopoly is believed to serve a useful purpose (I actually believe patents do not), then so be it. The state granted monopoly then serves a useful purpose to society, albeit temporary and time limited – it is a trade-off. If it looks like a duck, quacks like a duck, walks like a duck, so to speak, – then it is, what it is – a duck! Are there any other legal scholars, academics, etc., that share your views on this?

    Comment by Beaker | October 23, 2012 | Reply

  7. Beaker,

    You have failed to address the issue. Yes your property rights in you home end when you die. Dead people cannot own things. So you have proved your ignorance.

    What is true is not determined by majority rule, you seem to lack both basic moral and logical foundations.

    Patents are not a duck. As clearly pointed out, patents do not have the properties of a monopoly, but you prefer to rant that actually engage in a logical discussion.

    Comment by dbhalling | October 23, 2012 | Reply

  8. Dale,

    It appears that a number of your readers are in sore need of a refresher course on basic property law.

    1) When you “rent” an apartment, you acquire rights in real property, namely, the right to exclude others from your exclusive right to enjoy the dwelling that you are renting. When the lease ends, your rights in that real estate expire.

    2) As to “monopoly”, there is nothing wrong or evil in having a monopoly per se. US antitrust laws are directed to the wrongful “abuse” of monopoly power. It’s not much different than gun ownership. There is nothing evil in owning a gun per se. However, you “abuse” the 2nd amendment right when you walk into a crowded movie theater and start taking target practice. Kapeesh?

    Comment by step back | October 24, 2012 | Reply

  9. The test used in this blog post is irrelevant, precisely because monopolies are not inherently bad. Checking whether something is harmful does not demonstrate whether it is a monopoly or not.

    The defining feature of a monopoly is that it prevents people other than the monopoly holder from doing certain types of things, even if they act completely independently of the monopoly-holder. By that definition, patents are monopolies because they can block other people from doing something similar, even if they didn’t get the idea from you.

    If patent restrictions only applied to people who got the idea from the patent-holder (directly or indirectly), then the possibility of them being just property rights could be considered, although it would still be subject to the whole ideas-as-property debate (plus the “allowing other people to hear your ideas” issue, which could be construed as voluntary distribution). As it happens, though, those considerations apply strictly to copyright – patents are simply a monopoly.

    Comment by Brilliand | February 4, 2014 | Reply

  10. You did not read the article. The testable thesis for a monopoly was defined and it was shown overwhelming that it is not a monopoly.

    By your definition of monopoly if I build your land and I had no idea that it was your property it would be a monopoly. You are not serious or you have no ability to understand basic logic.

    Property rights are based on creation. If you didn’t create the invention, then you stealing. The independent development is nonsense. If I build an orchard on your land independent of knowing it is your property rights, it does not make it my land.

    Comment by dbhalling | February 4, 2014 | Reply

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