Costs of intellectual property
This page attempts to list the costs of Intellectual property.
Legal costs
Companies pay patent attorney salaries, patent filing and maintenance fees, and significant litigation costs (it can easily cost over a million dollars to defend from a patent infringement lawsuit, even if you win), as well as higher insurance premiums due to the risk of being involved in patent infringement litigation. Some patents that should not have been granted, and others whose coverage is ambiguous, plus the unknown existence of some hidden patent lurking in the thousands granted to date, pose significant uncertainty to companies, especially high-tech start-up companies who cannot afford to risk a patent infringement lawsuit from a more established company. They might not even be able to afford to pay the patent attorneys to examine and issue an opinion regarding every potential patent issue that arises. So the company either forges ahead, risking a lawsuit, or decides to avoid making the product out of fear of litigation.[1]
Defensive patents
Venture capitalists insist on a strong patent portfolio when evaluating whether to invest in a company. But this is because, in part, patent portfolios are necessary to defend against other companies' portfolios. If there were no patent system, one would not need to defensively spend money building up a mountain of patents to use in counterclaims or cross-licensing negotiations.[1]
Studies
It seems reasonable to assume that patents must have some effect on technological innovation, but the interesting question is the practical magnitude of this effect. The results of the few studies that have attempted to detect it empirically do not favor the pro-patents position.
- Edwin Mansfield directed two important studies on this topic in the 1980s. The first studied thirty-one patented innovations in four industries: chemicals, pharmaceuticals, electronics, and machinery. One purpose of the study was to answer a simple question: what proportion of innovations would be delayed, or not introduced at all, if they could not be patented? According to the firms, about one-half of the patented innovations in the sample would not have been introduced without patent protection. The bulk of these innovations occurred in the drug industry. Excluding drug innovations, the lack of patent protection would have affected less than one-fourth of the patented innovations in our sample.
- The results of the second study were even more negative: According to detailed data obtained from a random sample of 100 firms from 12 manufacturing industries, patent protection was judged to be essential for the development or introduction of one-third or more of the inventions during 1981–83 in only 2 industries — pharmaceuticals and chemicals. On the other hand, in 7 industries (electrical equipment, office equipment, motor vehicles, instruments, primary metals, rubber, and textiles), patent protection was estimated to be essential for the development and introduction of less than 10 percent of their inventions. Indeed, in office equipment, motor vehicles, rubber, and textiles, the firms were unanimous in reporting that patent protection was not essential for the development or introduction of any of their inventions during this period.[2]
- A more recent paper approached this problem from a slightly different angle, but also failed to support the pro-patents position. If patents do indeed stimulate innovation, then presumably stronger patent protection should induce a higher rate of innovation. The authors addressed the question "Do Stronger Patents Induce More Innovation?" by studying the impact of a significant Japanese patent law reform implemented in 1988. Their main finding was that "the average response in terms of additional R&D effort and innovative output was quite modest." An econometric analysis using Japanese and U.S. patent data on 307 Japanese firms confirmed that the magnitude of the response was quite small.[3]
- A study published in The Columbia Science and Technology Law Review suggests that patents may harm new technology, economic activity, and societal wealth. The study was a multi-user interactive simulation of patent and non-patent systems.[4]
References
- ↑ 1.0 1.1 Stephan Kinsella. "There's No Such Thing As a Free Patent", Mises Daily, March 07, 2005. Referenced 2011-09-17.
- ↑ Julio H. Cole. "Patents and Copyrights: Do the Benefits Exceed the Costs?" (pdf) Journal of Libertarian Studies, Volume 15, no. 4 (Fall 2001), pp. 79–105. Referenced 2011-09-17.
- ↑ Lee G. Branstetter and Mariko Sakakibara. "Do Stronger Patents Induce More Innovation? Evidence from the 1988 Japanese Patent Law Reforms" (pdf), Carnegie Mellon University, College of Humanities and Social Sciences, Department of Social and Decision Sciences, 4-1-2001. Referenced 2011-09-17.
- ↑ Andrew W. Torrance and Bill Tomlinson. "Patents and the Regress of Useful Arts" (abstract, pdf, press release). Columbia Science and Technology Law Review, Vol. 10, 2009. Referenced 2011-09-17.