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Thursday, July 17, 2014

'Do Patents Stifle Cumulative Innovation?'

Joshua Gans

Do patents stifle cumulative innovation?: There has been a movement that began with the notion of the anti-commons that suggested that, whatever the other benefits and faults might be with the patent system, a fault that really matters for the operation of the system and for growth prospects (a la endogenous growth theory) is how patents might stifle cumulative or follow-on innovation. ...
The standard, informal theory of harm here is that follow-on innovators, feeling that they can’t easily deal with the patent holder on the pioneer innovation, decide that the risks are too high to invest and so opt not to do so. To be sure, this ‘hold-up’ concern is not good for anyone, including possibly the patent rights holder who loses the opportunity to earn licensing fees from applications of their knowledge. Suffice it to say, this has been a big feature of the movement against the current strength and, indeed, existence of the patent system.
One issue, however, was that the evidence on the impact of patents on cumulative innovation was weak. Mostly that was due to the problem of finding an environment where impact could be measured. ...
For this reason, all previous attempts concerned intermediate steps — most notably, the impact of patents on citations whether in publications or in patents. This includes work by Fiona Murray and Scott Stern, Heidi Williams and Alberto Galasso and Mark Schankerman. While there is some variation, this work showed, using various clever approaches, that patent protection (or other IP changes) might deter cumulative innovation upwards of 30%. That’s a big effect and a big concern even if the results were somewhat intermediate.
At the NBER Summer Institute a new paper by Bhaven Sampat and Heidi Williams (the same Williams from the previous paper) actually found a way to examine the impact of patents on follow-on innovations themselves. ... The ... paper presents pretty convincing evidence that you cannot reject zero as the likely prediction. That is, the effect patents on follow-on research appears to be non-existent. ...
Suffice it to say, while it is only a particular area, this is evidence enough that should cause many to identify and change their bias regarding the impact of patents on cumulative innovation. ...

The original post has a much longer discussion of the theory and evidence.

    Posted by on Thursday, July 17, 2014 at 08:31 AM in Economics, Market Failure | Permalink  Comments (52)



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