State of Innovation

Patents and Innovation Economics

What Your Position on Patents Reveals About You

It is surprising how much your position on patents reveals about your philosophical premises.  We need to first understand five fundamental facts about patents.

 

  1. The wealthiest countries in the world have the strongest patent systems.

This fact should be readily apparent to anyone who has looked into this subject.  There have been a number of studies on point and the correlation is at least as strong as the economic freedom index.

 

  1. Almost all new technologies are developed by the countries with the strongest patent systems.

This fact should be readily apparent to anyone who has looked into this subject.  This obvious fact has been verified by studies.

 

  1. The Industrial Revolution started in the countries (Great Britain and the US) that had the first functioning patent systems.[1]

Again this fact should apparent to anyone who has looked into this subject.

 

  1. Ayn Rand called patents (and copyrights) the most fundamental of all property rights.aynrandstamp

 

  1. Patents are enshrined in the US Constitution, Article 1, Section 8, Clause 8.

Patents and copyrights are the only rights mentioned in the original Constitution.  Note the Bill of Rights was not part of the original Constitution.[2]

 

Conclusions

Here are some straight forward conclusions we can draw from these facts.

 

  1. When a person is against patent rights for inventors, they are not an Objectivist, they are a poser.

 

  1. When someone argues that patents inhibit economic growth, they have an almost insurmountable burden of proof to overcome.

 

  1. When someone argues that patents retard the growth of new technologies, their position is not just wrong, it shows the person is irrational.

 

  1. When a person is against patents they are not pro-Constitution (a supporter of the Constitution), they are a poser.

Many libertarians and Austrians want to act like they support the US Constitution, but attack the property rights of inventors (patents).  You cannot have it both ways.

 

Here are some other conclusions that we can draw that are not quite as straight forward.

 

  1. People who attack patents have rejected Natural Rights.

Patents are built on Natural Rights (as is the founding of the US).  Under Natural Rights theory anyone who creates something has a property right in their creation.  Note that the libertarians and Austrians (economics) who argue against patents have all rejected Natural Rights and adopted Utilitarianism as their political ethics.  The socialists who argue against patents have adopted Altruism as their political ethics.

 

  1. People who attack patents believe reason is limited.

The Libertarians that attack patents are all enthralled with the philosophers of the Scottish Enlightenment, like Hume, Mill, Burke[3], and Hayek[4].  David Hume was an extreme skeptic that said humans could not even show we existed.  Hume argued that cause and effect did not exist.  He also argued induction and therefore science were nonsense.  He attacked Natural Rights and argued that a rational ethics was impossible.  (Hume supporters will argue he was just skeptical of these things, but the ferocity with which he attacks them shows that this was not just an interesting academic exercise on the part of Hume).  All of these philosophers undermine reason.  Many like Kant say they are for reason, but reason is limited.  That is a contradiction, but beyond this post.  Of course it is clear that the socialists also have rejected reason.

 

 

 

[1] The first patent system was Venice in the 1400s and Venice was one of the wealthiest and most technologically advanced cities in the world at the time.

[2] The Writ of Habeas Corpus is not a Right, it is a procedural guarantee.

[3] Burke is sometime considered part of the Scottish Enlightenment and sometimes not.  In this case he should be included.

[4] Intellectually Hayek fits the Scottish Enlightenment to a tee even though he is not normally included in this group.

September 16, 2016 Posted by | -Economics, News, Patents | , , , , | 3 Comments

Patents = Wealth

How Strong Patents Make Wealthy Nations is an excellent paper that provides overwhelming evidence that patents create economic wealth.  The paper has two excellent charts.  The first chart shows the strength of a number of countries patent systems versus their wealth.

wealth.v.patents

 

The second chart compares the per capita GDP of the U.S., Great Britain, and Brazil from 1700 until 1913.  The U.S. and UK had patent systems, while Brazil did not and Brazil and the U.S. became independent about the same time.  The result is that Brazil’s per capita GDP hardly changes while the U.S. and UK experience an over five-fold increase in per capita incomes from 1800 to 1913.

GDP.US.Uk.Brazil

 

This paper has important implications on economists Paul Romer’s work.  Paul Romer is one of the leading new growth economists and is often mentioned as likely future recipient of the Nobel Prize in economics.  Romer and Robert Solow have shown that increasing levels of technology are the only way we increase real per capita wealth.  Romer contends that property rights for inventions (mainly patents) are always a bad trade-off.  He argues that strong patent systems encourage the creation of new technologies, but they inhibit the dissemination of new technologies.  His reason for this position is based in his belief in the theory of “pure and perfect competition.”  Alternatively, weak or non-existent patent systems result in good distribution of new technologies but they are poor at creating new technologies.  It is clear that this paper provides significant empirical evidence that Romer’s idea that property rights are always a bad trade is incorrect.

 

I have one minor criticism with this paper.  The authors argue that the patent system in the U.S. helped manufacturing.  Manufacturing is not what causes increases in our per capita income and inventions sometimes hurt manufacturing.  For instance, digital printing and the Internet have completely destroyed the manufacturing side of the publishing industry and 3D manufacturing has potential to do the same thing to manufacturing in other industries.  The question is not whether patents help manufacturing, it is whether it makes us wealthier.

 

 

How Strong Patents Make Wealthy Nations by Devlin Hartline & Kevin Madigan

June 24, 2016 Posted by | -Economics, Innovation | , | Leave a comment

Libertarians vs Classical Liberals on Patents and Inventors

The libertarian crowd has been at the forefront of the anti-patent crusade.  It is important to understand that libertarians are not consistent with classical liberals, such as the founding fathers and Locke.  I have been looking for a way to illustrate this.  Then I ran across a Wall Street Journal article by Matt Ridley, a darling of the libertarian crowd, which illustrated the differences perfectly. The article ostensibly was about government funding of science. I am sympathetic to the thrust of the article, however, in the second paragraph he states:

“Suppose Thomas Edison had died of an electric shock before thinking up the light bulb. Would history have been radically different? Of course not. No fewer than 23 people deserve the credit for inventing some version of the incandescent bulb before Edison, according to a history of the invention written by Robert Friedel, Paul Israel and Bernard Finn.”

This struck me as a very odd paragraph in an article on government funding of science. Edison was not funded by the government. Mr. Ridley and the people he cites may have never worked in fundamental research or with inventors. This may result in a misunderstanding of the differences between various inventions that lay people group together, which is the case with the paper cited in the article.

mostpowerfulideaRidley’s sole argument about Edison rests on the idea that other people were working on the problem. Thousands of people have tried to solve Fermat’s last theorem since 1637. Does that mean Andrew Wiles proof in 1994 was inevitable? Alternatively, only Edwin Armstrong worked on and invented FM (frequency modulation). Does that mean FM was not inevitable?

The article does stop there however, it goes on to denigrate the work of almost every great inventor and scientist since the Enlightenment, concluding with the statement:

“Simultaneous discovery and invention mean that both patents and Nobel Prizes are fundamentally unfair things. And indeed, it is rare for a Nobel Prize not to leave in its wake a train of bitterly disappointed individuals with very good cause to be bitterly disappointed.”

Ridley is not just attacking government funding of science, he is contending that discoveries and inventions are equally likely, given a range of researchers. If you take the statement above literally, it means that everyone working in technology and science are robots.

However, Ridley provides no evidence for his position and ignores the large variations in the rate of science advancement and inventions in both time and geography. This is not surprising, as Mr. Ridley did the same thing in his book The Rational Optimist, where he claims that most inventions were never patented, however a simple fact check showed that every invention he mentions is the subject of numerous patents.

The excellent book, The Most Powerful Idea in the World by William Rosen, shows that the Industrial Revolution, which was really an explosion in new inventions, was the result of property rights for inventions, i.e., patents, as does my book Source of Economic Growth.

One of the differences between classical liberals and libertarians is that classical liberalism celebrates great people, particularly those who used reason in the areas of science and technology. The Enlightenment was about celebrating the power of reason and rejecting faith and determinism. Thomas Jefferson said the two of the greatest people in the history of the world were Isaac Newton and John Locke.

Perhaps Ridley’s position is not shared by most libertarians. Yet, a recent panel discussion on Reason TV, part of the libertarian magazine Reason, shows Ridley’s position is widely shared. One panelist compared patents to slavery and taxi medallions. Another panelist made Ridley’s point that most inventions were never patented. But, if you eliminated everything in your house that was subject to a patent or made by a process that was once patented, your house would not exist. Most people will quickly understand that all the electronics would be gone, but so would the refrigerator, the electrical power, and even the glass in your windows was subject to patents extending back to Venice.

It would be easy to brand such an anti-intellectual property as arising from jealousy or self-aggrandizement, however, I think that would be a mistake. These libertarians are pushing a version of F. A. Hayek’s cultural evolution. Hayek’s ideas on cultural evolution are based on the impotence of reason. Hayek argues, that the demand for rational, conscious (“political”) control of the concrete particulars of social life is based upon a misunderstanding of the process of cultural evolution and on a hubristic and dangerous overestimation of the capacity of the conscious reasoning intellect.”[1]

Ridley is just applying Hayek’s ideas on cultural evolution to science and technology. He is not the only one; the libertarian/Austrian economist Peter Lewin from University of Texas at Dallas, sadly my alma mater, makes a similar point. He emphasizes that most technical knowledge is tacit knowledge which is something we know but cannot prove or of which we are not conscious. In other places Lewin discusses “social knowledge” which appears to be tacit knowledge we hold collectively. Both Lewin and Hayek are fans of David Hume, who said causation does not exist (or cannot be proved) and induction is invalid or could not be proven valid. For many libertarians the anti-induction, anti-reason David Hume, is a hero.

Classical liberals know that causation exists, that Induction as a methodology, is not only valid, but the source of all knowledge. The most important value to a classical liberal is Reason. They understand that there is no such thing as social knowledge or knowledge of which we are not conscious. Classical liberals understand each person’s mind functions independently and therefore they celebrate great inventors and scientists. They know that without these great people, it is entirely possible that we would still be living in the Dark Ages. One only need look at North Korea, Cuba, or the Middle East to understand that technological progress is not inevitable and is not the result of some determinist spontaneous order.

What is interesting if you look closely at the arguments of Ridley, Hayek, and Lewin is that they are collectivist at an epistemological or cultural level. Their argument against a centralized government appears to be that it distorts this collectivist acquisition of knowledge.

Classical liberals and libertarians both appear to support free markets or capitalism. Beyond this they diverge, especially for the modern beltway libertarians. Classical liberals base their support of capitalism in reason and natural rights, which are discovered by reason. Libertarians base their arguments for free markets based on collective acquisition of knowledge that is disrupted by government interference.

Libertarians often align themselves with Ayn Rand, and claim her as one of their own, however, their ideas are incompatible with Rand’s. Rand herself was highly critical of the creed of Libertarianism, calling them “hippies of the Right.” If Matt Ridley had written Atlas Shrugged, the economy would have hummed along based on spontaneous order and John Galt would not be a genius inventor.

 

 

 

 

[1] http://www.firstprinciplesjournal.com/articles.aspx?article=1513&theme=home&page=3, Hayek on the Role of Reason in Human Affairs, Linda C. Raeder, Palm Beach Atlantic University

December 1, 2015 Posted by | -Philosophy, News, Patents | , , , | 5 Comments

Capital in Disequilibrium: The Austrians’ Answer to New Growth Theory

This book, Capital in Disequilibrium: The Role of Capital in a Changing World by Peter Lewen, is supposed to be Austrian Economics’ answer to “new growth theory”, which recognizes that new human knowledge is the most important component to economic growth.  As opposed to the “old” ideas on growth which claimed economic growth was the result of increases in land, labor, or capital.  Old school growth theories focus primarily on increases in capital.  Perhaps the two biggest figures in new growth theory are Robert Solow and Paul Romer.  Robert Solow won the Nobel Prize in economics for his econometric study showing that technological change was the key driver in the US economy.  Sadly he then said technological change was not part of the study of economics, it was like background radiation and beyond our control.  Paul Romer takes over from Solow by making technological change part of the study and policy recommendation of economics.

humeThis book suffers from many of the same problems other economists who have explored new growth theory have had.  They attempt to graft the findings of new growth theory onto their preconceived ideas about economics.  For example, Robert Solow is a Keynesian so he has attempted to just tweak Keynesian ideas to fit this new information, instead of understanding that this new information required a whole new look at and approach to economics.  Paul Romer is what I would call a “mathematical Keynesian” and is also trying to fit a square peg into a round hole.

This book attempts to take the finding s of new growth theory and meld them into Austrian Business Cycle Theory (ABCT).[1]  ABCT claims that economic growth is the result of increases in capital/savings.  There is no evidence that increases in savings or capital in anyway result in economic growth and plenty of evidence to the contrary.[2]  Pasting some of the ideas of new growth theory onto ABCT neither solves the problems with ABCT nor adds anything to new growth theory.

The author’s ideas on scientific and technical knowledge come from Karl Popper, who has argued that knowledge is impossible.  This is not surprising as it is consistent with Hayek’s ideas of cultural evolution, which argues that reason is limited and it is conceit to suggest that anyone can use reason to determine a correct societal structure.  Both Hayek and the author are fans of David Hume (See Lewin’s youtube “Peter Lewin on Austrian Capital Theory – Part 1”).  David Hume you will remember said causality was an illusion and brought us the “is ought” problem in ethics.  In other words, Hume attacked the very basis of reason, logic, and ethics.  Hume is part of the Scottish Enlightenment, which elevated emotions above reason.  The Scottish Enlightenment underpins all of Austrian Economics.  The other philosophical tradition behind the Austrians is philosopher Franz Brentano who raised the psychology of the person to a primary.

It is not surprising then that the author concludes “The superior performance of capitalist economies cannot be logically ‘proved.’”  Under the author’s ‘implications for policy’ section we get this,

“It involves not only, or primarily, the addition of existing capital equipment but rather the introduction of progressively more technically advance equipment, the production of which is made possible by an institutional environment in which the discovery of such technical advances is encouraged.”

Interestingly enough the author never explains what encourages technological advances and he never even mentions property rights for inventions, i.e., patents.  Even Solow and Romer realize that they cannot ignore patents, however contrived their arguments are for dismissing them.

One of the reasons the author ignores patents is that he emphasizes what he calls “tacit knowledge.”  Tacit knowledge is something we know but cannot prove or of which we are not conscious.  This is perfectly consistent with the Austrian ideas that reason is limited or ineffectual.  As a result, he talks a lot about innovation and never mentions inventors.  He talks about organizations, but never individuals.  He talks a lot about production and ignores invention.  Austrians like to scream they are capitalist or free market, but they are certainly not pro-individualistic.  This is not surprising as this would require a commitment to the power of the individual mind to understand the world.  The author further reveals his collectivist ideas when emphasizes that the knowledge that is important to the economy is “social knowledge.”  The Austrians are collectivists.  They believe central planning interrupts the functioning of the process of gaining “social knowledge.”

This book does not contribute anything to new growth theory.  The only reason to read this book is to better understand the underlying principles of Austrian Economics, which are not pro-reason, pro-individual, or pro-capitalism (The economic system that occurs when the government protects individual rights.)

[1] A Graphical Introduction to the Austrian Business Cycle Theory, Gaurav Mehra, https://mises.ca/posts/articles/a-graphical-introduction-to-the-austrian-business-cycle-theory/, accessed 9/8/15

[2] [This] technique has been applied to virtually every economy in the world and a common finding is that observed levels of economic growth cannot be explained simply by changes in the stock of capital in the economy or population and labor force growth rates. Hence, technological progress plays a key role in the economic growth of nations, or the lack of it.  http://en.wikipedia.org/wiki/Growth_accounting.

 

September 9, 2015 Posted by | -Economics, Innovation, philosophy | , , , , , , , | 3 Comments

Intellectual Property, Innovation and Economic Growth

This article, Intellectual Property, Innovation and Economic Growth: Mercatus Gets it Wrong, by Mark Schultz & Adam Mossoff is a follow up to their other article Intellectual property and economic prosperity: Friends or foes?  This article is more hard hitting and the ask the questions of who has the burden of proof on whether patents promote economic growth?  Anti-patent proponents consistently fail to provide any empirical data to support their positions, although they are great at coming up with anecdotal stories.  Despite this they assume that the burden of proof is on people who support property rights in inventions.

 

The reason anti-patent advocates don’t think they have the burden of proof is that they have been taught the economic concept call pure and perfect competition as the goal of capitalism.  Some of these people even think that perfect competition is the definition of capitalism.  Perfect competition is inconsistent with the condition necessary for real per capita economic growth, is inconsistent with all property rights, has nothing to do with capitalism, is anti-mind, anti-invention, anti-patent.

PERFECT COMPETITION IS THE ECONOMIC IDEALIZATION OF SLAVERY.

 

 

August 29, 2014 Posted by | News | , , , , , | Leave a comment

Another Libertarian Argument Against Patents Bites the Dust

Libertarians and Austrians, including such organizations as the CATO Institute, Von Mises, and the Wall Street Journal, have put forth a number of arguments against patents and intellectual property.  These arguments include that ideas (an invention is not just an idea, but I will let that go) are not scarce and therefore patents are not real property rights, patents are monopolies, patents inhibit the growth of technology, patents require the use of force to enforce one’s rights, patents are not natural rights and were not recognized as so by Locke and the founders, among other arguments.  I have discussed most of these arguments earlier and will put the links in below.  One of their favorite fall back arguments is that patents limit what I can do with my property.  For instance, a patent for an airplane (Wright brothers) keeps me from using my own wood, mechanical linkages, engine, cloth, etc. and building an airplane with ailerons (and wing warping).  This according to the libertarian argument is obviously absurd.  After all it is my property.  Here is an article Scarcity, Monopoly, and Intellectual Property on the Von Mises website where you can see almost every variation on the arguments mention above either in the article itself or in the comments.

Can I do whatever I want to with my property, or are there restrictions?  Well when I buy a book, a movie, or a song, it does not give me the right to make unlimited copies of them.  I have a property right in the physical book, but not the rights (copyrights) to make copies.  Of course, many Libertarians think copyrights are absurd also, so let’s look at another example.  Let’s assume you own your house and land outright.  Does that give you the right to do whatever you want to with you land?  Most likely, your land has easements for utility lines, such as water, gas, sewer, electricity.  You are not allowed to do anything that interferes with those easements.  You might object that I don’t own the easement, so this is a bad example.  So let’s say you own a bulldozer, does that give you the right to bulldoze my apple orchard and build a house there?  It is your property after all and according to the libertarian argument you are allowed to do whatever you want to with your property.  You might object, that of course the libertarians did not mean that you could take advantage of my property to build on.  Of course that begs the question, what is property?  If a patent and copyright are property rights, then this is exactly the same situation.  Another example where you are prohibited from doing something with your property, is in the case of water drainage.  In particularly wet areas of the US you are prohibited from moving the earth on your land so water drains onto your neighbors property more freely – and no this is not an EPA rule, this is common law property rights.  In parts of the country where water is scarce you are prohibited from damming up water on your land.  If you buy land in a residential neighborhood you are prohibited from setting up a pig farm.  Just because I own a gun, doesn’t give me the right to go around shooting people.  The libertarian argument that patents are not real property rights because they prevent others from doing something with their property fails even the most cursory review.

One of the common themes that runs throughout all Libertarian arguments against patents is that Libertarians’ do not seem to know what property rights are, or how they arise.  Here is a post on point, Property Right, Possession, and Objects; this post not only explains the proper basis of property rights, but why the Libertarian point that property requires possession is a fallacy.  Libertarians have failed to provide a clear definition of what property rights are and how they arise.  In fact, most anti-patent libertarians believe property rights are a useful social convention for distributing scarce resources.  This is interesting, because they can become so adamant about what is their property.  But nothing in this concept of property has anything to do with RIGHTS.  If another, better system comes along for distributing scarce resources, then your property is gone.

Property rights do not give the owner the right to do whatever they want with their property.  The source of property rights is creation, not the idea that it is a socially useful convention.  Patents recognize the metaphysical fact that the inventor is the creator of his invention and are completely consistent with other property rights in prohibiting an owner of other property from using it to build his invention.

 

 

Below is a list of other Libertarian arguments against patents and why they fail.

 

Inventions are not scarce:

Scarcity – Does it Prove Intellectual Property is Unjustified? 

 

Patents are monopolies

Patents: Monopoly or Property Right a Testable Hypothesis 

If patents are a monopoly, as some suggest, then it should led to certain outcomes.  A close examination shows that none of the supposed monopoly effects result from granting patents.

 

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.

 

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.

 

Patents are Natural Rights 

This post traces the ideas of Locke and William Blackstone to show patents and copyrights are natural rights.

 

Patents inhibit the growth of technology:

Source of economic growth

This post shows that those countries with the strongest patent systems are the technological leaders of the world Patents: Monopoly or Property Right a Testable Hypothesis

 

Patents require the use of force

This is one of the more absurd arguments by libertarians.  All property rights are enforced by the government’s use of force.  If someone trespasses on your land or steals your car, the government threatens or uses force to get it back.  The same is true for patent, which are property rights in inventions.

 

April 20, 2014 Posted by | -Philosophy, Patents | , , , , , , , | 2 Comments

Patents: Property Rights or Regulation

There appears to be a lot of confusion on whether patents and patent laws are property rights and property laws or regulations.  For instance, Steve Forbes in an article entitled, America’s patent system is all wrong for today’s high-tech world  starts that article by complaining that the Obama Administration is always looking for a way to “regulate and interfere in the free market.”  Mr. Forbes goes on to complain about Non-Practicing Entities (NPEs) asserting patent rights and ends the article by complaining that “don’t we have enough regulatory hurdles to jump in the first place?”  I have seen this same theme that patents (all IP) are regulations in a number of blogs.  These people do not seem to understand property rights.  Part of the confusion may be that we do not have clear definitions of what property rights are and what regulations are.  For instance, I looked up a number of definitions of property rights and the definition from Black’s Law Dictionary is representative.

 

What is PROPERTY?

The ownership of a thing is the right of one or more persons to possess and use it to the exclusion of others.

 

This definition is incomplete at best.  For instance, is a taxi medallion a property right?  Is a license to a part of the electromagnetic spectrum from the FCC a property right?  Is a government monopoly to provide electrical power within a certain geographic region a property right?  All of these are exclusive legal rights.

Personally, I would consider a taxi medallion or a FCC license a regulation.  So I looked up a number of definitions of regulation, and the one below from Free Online Dictionary is representative.

1. The act of regulating or the state of being regulated.

2. A principle, rule, or law designed to control or govern conduct.

This definition is so broad as to encompass any law.  For instance, is the right to free speech a regulation?  Is the right to your house a regulation?  Are the laws against murder a regulation? Is the Homestead Act a regulation?  All of these control or govern conduct.  When we are talking about regulations most people mean something like building codes or OHSA rules or the FTCs requirement that all bicycles are required to have retroreflectors on the pedals.  We generally do not think of the laws against murder, burglary, or even the rules on recording title to land and houses as regulations.  But if you look at these two definitions, property rights and property laws are a subset of regulations.  This is clearly nonsense.

Most histories of the modern regulatory state in the US place its origin around 1900 and refer to agencies such as the Interstate Commerce Commission (whose original function was to regulate railroads), the Federal Trade Commission, the Securities and Exchange Commission, etc.  This provides a clue to the correct definition of regulation and shows that we do not mean common law property rules or common law crimes when we are speaking of regulation.

According to Steve Forbes and most people when we think of a regulations we think laws and rules that interfere with the free market.  Unfortunately, people use very loose definitions of ‘free market’.  For instance, some people think a free market is one that has “perfect competition”, which suggests that anti-trust laws are part of the free market as might be the FTC.  A better starting place to find out what is a regulation and what is a property right is the logical foundation on which this country was created – Natural Rights.  Natural Rights define property rights based on the idea that if you own yourself you own the product of your labor.  Thus you own land because you spent the effort to improve it, e.g., the Homestead Act.  (Today most of us trade our labor for currency that we then use to purchase ownership in our house or land based on our Natural Right to contract.  But the principle still applies.)  Inventions are the creation of the inventor and therefore the inventor has a property right in their creation.  I have created a three part test to determine whether something is a property right.

 

1) Does the right arise because the person created something?

2) If someone else was the creator would they have received the right in the creation?

3) Is the right freely alienable?

 

If the answer is yes to all three questions, it is a property right.  A patent fits all three as does ownership in land.  Note that taxi medallions, electrical power monopolies, and FCC licenses all have at least one no to the above definition.  Thus a regulation is something that interferes with a person’s property rights, such as EPA wetland rules or the right to use your property to start a business.  Other regulations, such as minimum wage laws interfere with a person’s right to contract.

A regulation is a government rule that interferes with a person’s Natural Right to property or right to contract. 

Patents and NPEs do not fit that definitionThis definition clearly defines that property rights are not regulations and limits regulations to true meddling in ‘free markets’.

 

July 23, 2013 Posted by | -Philosophy, Patents | , , , , | 18 Comments

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.

If MONOPOLY

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.

If PROPERTY RIGHTS

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 | , , , , | 11 Comments