Patents Vs Innovation - the Tabarrok Curve

New submitter Optimal Cynic writes "Slashdot likes to argue about intellectual property and patents, and it's clear that both extremes are undesirable. Dr Alex Tabarrok has tackled the question — what is the right level of patent protection? His answer is the Tabarrok Curve, which applies the Laffer Curve methodology to innovation."

Comments

Some fundamental, unchecked assumption here ?

[vikingpower]

Tabarrok seems to tacitly assume that innovation can be regulated via legislation. It seems to me that this non-proven, basic assumption has been proven wrong more than once, e.g. during the few years preceding the internet bubble of the '90s. The tip of the curve, then and there, lay completely to the left. ( Where IMHO it should be, but I am trying to separate facts from discussion from personal opinion here. )

Re:Some fundamental, unchecked assumption here ?

[stenvar]

Tabarrok seems to tacitly assume that innovation can be regulated via legislation.

Where in the world do you get that idea from?

He just says that too much patent protection has a cost that, at some point, must outweigh any benefits, so the optimal level of patent protection is not the maximum one. What the optimum level is, he doesn't know

If you're of the school that believes that patent protection is always bad, then his argument isn't meant for you. He isn't arguing for more patent protection with people like you, he is arguing against more patent protection with people who say "since some patent protection is good, more must be better".

Re:Some fundamental, unchecked assumption here ?

[vikingpower]

Where in the world do you get that idea from?

From TFA, as in these lines:

So, we’ve constructed the patent system: people have a 17 year exclusive right to such public goods. That is, we’ve made them excludable by law

I am not necessarily of the "school that believes that patent protection is always bad". I am of the school that believes that patent protection is, sometimes, a necessary evil, and bad at all other times.

Re:Some fundamental, unchecked assumption here ?

[stenvar]

And how does that translate into "regulation of innovation"???

Re:Some fundamental, unchecked assumption here ?

[narcc]

To be clear, he said "Tabarrok seems to tacitly assume that innovation can be regulated via legislation". Which, to answer your question, he supported by quoting the article: "So, we’ve constructed the patent system: people have a 17 year exclusive right to such public goods. That is, we’ve made them excludable by law".

I honestly don't see how you could possibly still be confused, having read both the article and the parent's posts.

Re:Some fundamental, unchecked assumption here ?

[Savage-Rabbit]

Tabarrok seems to tacitly assume that innovation can be regulated via legislation. It seems to me that this non-proven, basic assumption has been proven wrong more than once, e.g. during the few years preceding the internet bubble of the '90s. The tip of the curve, then and there, lay completely to the left. ( Where IMHO it should be, but I am trying to separate facts from discussion from personal opinion here. )

Where in the world do you get that idea from?

From TFA, as in these lines:

So, we’ve constructed the patent system: people have a 17 year exclusive right to such public goods. That is, we’ve made them excludable by law

I am not necessarily of the "school that believes that patent protection is always bad". I am of the school that believes that patent protection is, sometimes, a necessary evil, and bad at all other times.

For the benefit of those who did not read TFA: What he is saying is that patent protection can boost innovation but if that protection is too great the patents get used as a weapon to bash competitors with the result that there is a net drop in innovation. Furthermore he is arguing that we have passed well beyond the point where patent protection is a demotivating influence on innovation so in that sense you actually agree with him. One only has to look at his curve to see this:

http://b-i.forbesimg.com/timworstall/files/2013/06/tabarrokcurve.png

In that graph, if you move too far to the left and you have no patent protection at all which stifles innovation, move too far to the right and have excessive patent protection also stifles innovation, stay somewhere in the middle and patent protection will actually boost innovation above the two extremes. You seem to be mostly arguing for the greatest innovation being achieved at a point that is very close to the left hand extreme. I'm not saying he is right in every detail but the basic idea of applying the Laffer tax revenue curve to innovation seems sound. Too much red tape around patents is just as detrimental to innovation as overtaxation is to state revenue. Likewise too little patent protection is just as likely to stifle innovation as excessive tax cuts are likely to screw up state finances.

As regards the legal system he eventually suggests that it may not be the patent system that is at fault so much as the legal system it self:

Knowledge is a public good and thus in a pure free market we think that too little of it will be produced. Too strong a protection and again too little will be produced.

These are the sorts of thorny questions that we instituted government to deal with for us. Hands up everyone who thinks that our current politicians are going to get this necessary balance right? Quite: it might be that it’s not so much the patent system which is not fit for purpose as the legislative.

Basically he is hypothesising here that we can move ourselves further to the left on his Tabarrok curve mostly (though presumably not exclusively) by legal reform rather than patent reform. I am no lawyer but it seems pretty obvious to me that fixing the legal system such that patent trolling by two bit law firms in East Texas and general patent warfare by major corporations were made significantly harder than it currently is, might be a good idea. In fact the whole issue of anti-competitive and SLAPP lawsuits and the power they give people with lots of money to spend to extort less wealthy people/organisations/companies is something that needs urgent fixing.

Re:Some fundamental, unchecked assumption here ?

[khallow]

Woohoo, there may be a curve

As long as you have two parameters, can vary one parameter with respect to the second, and the second parameter varies continuously with respect to small changes in the first parameter (all else being equal), you have a curve.

Re:Some fundamental, unchecked assumption here ?

[jalopezp]

Using the curve he presents, we could easily argue that zero strength patents yield the same amount of innovation as we see today (draw a horizontal line from the "we are here" point to the Y axis),

ooh, yeah... no. A drawing like that means he thinks the curve is concave with a local maximum above zero. And 'we are here' means he thinks we're to the right of the maximum. Talking about actual levels of innovation is way beyond his argument.

If we factor in the side industry of patent litigation...

This is precisely what he argues is the cost of patent law. It's already taken into account.

It also assumes that there is only one point on the curve with a global maximum value for innovation, yet is see no argument from him as to why that would be the case.

It is in fact there. Note a couple of things, both said in the article:

1. (1) Knowledge (innovations, invention) is a public good - it is non-exclusive and non-subtractable-, so in an unregulated market it will be under-supplied;
2. (2) patents make knowledge exclusive, at least for a limited amount of time - whoever holds a patent may charge others for the use of his knowledge.

The idea, following the logic of the Laffer curve (people hate the Laffer curve because of its association with supply side economics, but the argument is very old and generally not contested), is that as we introduce a small amount of patenting, innovation will increase drastically as we take from where there is the most surplus: the great innovations with high cost and difficulty of discovery will be patented. There certainly will be some cost, and some litigation to prevent copying, but the existence of these new innovations greatly outweighs it. As we introduce more and more patents (or increase their length), lesser innovations will be patented, those whose research costs are not so high, and those which are a little bit more obvious. The costs of protecting these patents will be proportionally higher, and society will benefit less from the patent system being applied to them. Eventually, the cost will be so high that it is equal to the value of the new innovation. This is the maximum, the tip of the curve; this is the most innovation that we can get before it stops being worthwhile.

Now if we continue patenting more and more liberally, or extending the length of the state monopoly granted by the patent, we get to the point where trivialities are being patented, and parties are arguing over who deserves the credit (and the state monopoly) for a small incremental innovation that should have been obvious to everybody. The cost of litigation in this case will greatly exceed the value of the innovation introduced by the patent. This means that at this point, we would be better off reducing the amount of patents available; the cost of assigning the rights of the patent and .

This is his basic argument about the shape of the curve. He further argues that we're to the right of the maximum. Much like with the Laffer curve, this is not to suggest that the maximum amount of innovation is where we should be either.

Re:Some fundamental, unchecked assumption here ?

[cpt kangarooski]

His hypothesis makes sense but it only looks at the time constraints. I assume he did this because it is the easiest thing to legislate and not have to deal with constitutional matters in the US, since the constitution directs the government "To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;"

No, the Constitution only empowers the federal government to grant patents and copyrights. Article I, section 8 does not direct it to do so, however, any more than it directs the government to grant letters of marque and reprisal to privateers, which is another power it holds. Making the US a patent free zone mitt be a bad idea, but it would be perfectly constitutional.

Re:Some fundamental, unchecked assumption here ?

[Miamicanes]

> Let's say patents were strong and eternal. This could easily lead to land grabs - there's a rush to discover new areas
> that people aren't even thinking about right now and bring them to market so that they can be patented. The value of a
> patent portfolio is high, and so companies may innovate to create such portfolios. Cross-licensing would be the order
> of the day in that environment, but it would hardly mean innovation would be dead.

No, it means we'd be in eternal stagnant IP feudalism, where only companies the size of Sony, Samsung, Apple, and Microsoft were allowed to innovate anything meaningful commercially. Everyone else would be -- at best -- IP sharecroppers forced to kneel before them and grant their patents for a pittance in return for the right to make commercial use of them at all, because just about any conceivable implementation would otherwise infringe upon two dozen other patents.

Think about it. When's the last time a huge corporation held by risk-averse institutional shareholders concerned with maximizing the next quarter's profits truly innovated *anything* that could be described as "disruptive"? The infant Microsoft would have been thrown into the well and drowned by IBM, DEC, Burroughs, Wang, and all the other companies that used to dominate the American computer industry back in the 1970s/80s. Woz would have gotten served a C&D 3 days after showing off his new prototype to the computer club. Commodore would have never existed, because its whole economic foundation was a semiconductor firm who built what was practically a 6800 clone. Fairchild *and* Shockley would have been eternal vassals of Bell Labs.

Big companies owned by institutional investors are almost genetically incapable of disruptive innovation, because it involves risk, and risk means the next quarter's profits might be disrupted. When alliances of similarly risk-averse companies have de-facto veto power over everyone else by virtue of strong patent protection, disruptive innovation stagnates.

In a way, the former Soviet Union is a perfect indirect example. In the Soviet Union, risk-averse bureaucrats had de-facto (if not de-jure) veto power over everything. The same way a company like Sony can unleash its lawyers to stop disruptive media technologies in their tracks in the holy name of IP law, the Soviet government could unleash its army of law enforcement officers and bureaucrats to prevent a Soviet citizen with a disruptive invention from ever doing anything with it. There was actually quite a bit of underground innovation in the Soviet Union... it's just that it was all basically masturbation, because their efforts were stymied at every level (by buraucratic indifference if they were lucky, by aggressive political backlash if they were perceived as presenting a risk to someone in a position of power, no matter how petty or meaningless).

Going back further to the dark ages, how much real innovation occurred when everyone was forced (by law, if not practical necessity) into being vassals under feudalism that subordinated everyone and everything to landed nobility and the Church? Yes, we had people like Kepler, Newton, and Galileo... and their contemporary influence was almost nonexistent. Their discoveries were talked about privately, behind closed doors, and most of their effort was spent trying to avoid getting crushed by those who cared mainly about preserving the status quo. They're revered today, centuries after their deaths, but in their day, they were basically viewed as godless heretics who deserved to burn for their sins, or at least spend a few decades repenting them in a dark prison cell somewhere.

People forget that the US itself was founded as a reaction to the old world order. Pre-Berne, American IP law was almost at a 90-degree angle to European IP law. European IP law viewed IP as a moral right, like being granted land by a sovereign king acting through the grace of God. American IP law, in stark contrast, was scandalously utilitarian. Up until t

Re:Some fundamental, unchecked assumption here ?

[devent]

It's just his opinion. And his curve is a straw man that he puts out of his ass.
Where is the evidence that some patent protection is good? Ah right there is none. Everybody just assumes that some patent protection is good for innovation. That is just like creationism or like any other theology.

There is evidence that more patent protection is bad. See software patents. But where is the evidence for the other side, i.e. no patent protection as bad?

Don't come to me with some mind experiments like "But without patent protection where is the incentive to innovate". People have innovate for freaking 50,000 years. Our patent system, or our capitalist system is just about 250 years old.

I repeat. There is no evidence that any patent protection increases innovation.

There is plenty of evidence that too strong patent protection hampers innovation. See software patents, patents on DNA, business patents, and so on.

There is also evidence that no patent protection actually increases innovation (I posted already here but I post again)
The only real empirical study that I know of is The patent game.
See http://www.youtube.com/watch?v=q1Pi4w8ddA8
And they come with quite surprising conclusions.

"pure common system" means no patent protection.

1. patents increase innovations?

Average unique innovations is lower in the "pure patent system", and is higher in the "pure common system"
Productivity, aka economic activity, the "pure common system" is almost double the "pure patent system"
Per capita wealth, the total amount of dollars generated in the system: "pure common system" is almost 4 times that of the "pure patent system".

Conclusion: "Despite received wisdom, commons spur innovation better then do patents"

Re:Some fundamental, unchecked assumption here ?

[tlhIngan]

It's just his opinion. And his curve is a straw man that he puts out of his ass.
Where is the evidence that some patent protection is good? Ah right there is none. Everybody just assumes that some patent protection is good for innovation. That is just like creationism or like any other theology.

There is evidence that more patent protection is bad. See software patents. But where is the evidence for the other side, i.e. no patent protection as bad?

You can apply history to it - patents have been around only a few hundred years - dating back to just before America.

You could also try to frame it in context of say IP protection. Is copyright good? Bad? Too much? Too little?

Will open-source succeed without copyright? Would you write a program to scratch your itch if it wasn't under copyright protection? Realize that the latter means it's effectively modified-BSD licensed.

Software is a tricky thing because until its invention, patents were used for "things" and copyright was used for "creative works" and neither the twain shall meet. After all, writing a book doesn't get patent protection (other than design patents, if the book has certain ornamental features). The work itself doesn't have utility other than being entertaining (hopefully), but that's it. Likewise, the printing press used to make the book isn't copyrightable - there's no "expression" going on other than maybe a few decorative items to give it better form.

Software though, is both. It can be a creative work meant to be enjoyed, or a part of a machine. In effect, it's forcefully combining two areas of IP protection that were never intended to be combined in the first place. And both are being twisted to accommodate this ill-fitting piece.

Perhaps what needs to happen is sitting down and realizing this - that software should not be patented nor copyrighted, but covered under its own IP protection category because of its unique nature. After all, if you get rid of software patents, you're saying if I build a machine out of electromechanical parts, I can patent that, but if I replace some of those electromechanical parts with software to make it more flexible, simpler and more reliable, it's suddenly unpatentable? (And software can be hardware, too, thanks to modern VLSI RTL).

It's probably time to stop forcing software into copyright and patents and realize it's got its own attributes from both, and crafting IP protection appropriate for this reality than bending existing protections about.

Re:Some fundamental, unchecked assumption here ?

[Richy_T]

Yes, let's take something like cancer research... Who on earth would fund cancer research if they couldn't make billions from marketing expensive drugs to people who would have to sell all their worldly goods to buy them? People with cancer (and their families) perhaps?

Re:Some fundamental, unchecked assumption here ?

[Weedlekin]

Going back further to the dark ages, how much real innovation occurred when everyone was forced (by law, if not practical necessity) into being vassals under feudalism that subordinated everyone and everything to landed nobility and the Church? Yes, we had people like Kepler, Newton, and Galileo... and their contemporary influence was almost nonexistent. Their discoveries were talked about privately, behind closed doors, and most of their effort was spent trying to avoid getting crushed by those who cared mainly about preserving the status quo.

The dark ages was a time of significant innovation, e.g. the wheeled, adjustable pough; water mills; the horse collar; draw plates for making wire; the blast furnace; pointed and ribbed arches; the flying buttress; etc., etc., etc.

Kepler, Newton and Galileo did not live during the dark ages. All were well known during their lives, but only Galileo got into trouble over his publications, and it was the way his book was written rather than its scientific content that got him imprisoned (it featured a dialogue between a thinly veiled version of himself as the wise know-it-all, who expounds at length to an idiot who is obviously based on the pope, thereby humiliating and annoying a man who had been his friend since childhood). Kepler's problems in later life were due to his connection with Calvinists, not his scientific work, and Newton, contrary to being crushed, did quite well for himself.

Common people didn't know about their works because they were published in Latin, so the few commoners who were literate were unable to read them.

curves

[l3v1]

Well, the first thing that came to mind when seeing it was this: http://xkcd.com/323/ :D

Assurance contracts

[IamTheRealMike]

Tabarrok is also known for his work on how to fund public goods via non-patent means, in particular his dominant assurance contract form which is a variant of what Kickstarter does.

don't help and there's more than innovation

[ciaran_o_riordan]

For software, they don't help innovation, and promoting innovation can't be the only goal. Lots of non-innovative software development is really useful.

* http://en.swpat.org/wiki/Studies_on_economics_and_innovation
* http://en.swpat.org/wiki/More_than_innovation

And it's really crucial that patents be analysed per-domain. The don't affect pharma and the auto industry the same, and they don't affect software the same either. The distribution models are different, as is the profile of who mass produces each thing, as is the complexity (number of ideas) that get added to a product within one lifecycle, and the length of product lifecycles...

* http://en.swpat.org/wiki/Why_software_is_different

Re:don't help and there's more than innovation

[ikaruga]

Another nice feature would be protecting only patents actually used in products made by the inventor or its partners, in order to take out those so called patent trolls that don't produce anything. If in the future the inventor actually decides to use the patent in an actual product and there is someone already using it there could be some sort of predetermined fee. Obviously I'm oversimplifying the huge problem, but something must be done about those parasites.

Re:The Laffer Curve?

[fuzzyfuzzyfungus]

I don't think I want to have the Laffer Curve as an ally here.

Oh, that's where your wrong; for a powerful ally it is. Just think for a moment: Do you have a problem that you can pretend to boil down to two variables that are inversely proportional in their hypothetical extreme cases? If so, just draw a curve of pretty much any shape between those points on the graph and *boom* Instant policy justification!

Even more fundamental assumption

[Camael]

An even more fundamental assumption he makes is that intellectual property legislation is desirable because it encourages innovation. Why should that be a given?

Take for example, the very same example cited in TFA, Sir Issac Newton and his mathematical principles. Isaac Newton composed Principia Mathematica during 1685 and 1686, and it was published in a first edition on July 5, 1687. Copyright did not exist at that time; the very first copyright law, the Statute of Anne was enacted only 23 years later in 1710.

The point I am trying to make is that people will innovate and create, even without the protection of intellectual property laws.

On a separate point, if the whole rationale for intellectual property legislation is to promote innovation, shouldn't the focus be on protecting the rights of the actual person doing the creating, as opposed to whichever faceless entity who may own the contractual right to make use of the invention? Start by making intellectual property rights vest only in the creator, and make it non transferrable. This will force commercial entities to grant a fair share of the profits to the real innovators instead of the giving an unearned bonus to the patent troll who own a large number of the patents today. The way it is structured today, it is very clear that intellectual property legislation only benefits those with the capital to buy over the rights and not the creators themselves.

No answer

[fastest fascist]

But the curve doesn't provide any answers! There's no method for deciding where on the curve we are at the moment, although the author seems to have arbitrarily decided on a point.

Re:The Laffer Curve?

[dkleinsc]

Oh, come on! These two curves are perfectly related: They're both attempting to vaguely connect 2 variables that intuitively seem like they ought to have something to do with each other without actually being a remotely accurate description of reality.

For reference, Arthur Laffer said the theoretical relationship between tax rates and government revenue per capita looks like this:
Laffer Curve
A suspicious Martin Gardner then plotted the actual relationship between tax rates and government revenue per capita, and got something that looks like this:
Neo-Laffer Curve

My basic view on the subject:
1. There's absolutely no way to measure real innovation. Some of the problems:
- Discoveries that seem unimportant can turn out to be incredibly important 15 years later, and vice versa.
- Organizations sometimes protect their discoveries by keeping them secret.
- Academics often give away the knowledge they have without patenting it to build their career. However, they can also build their career by giving away nonsense and getting away with it.
- A lot of "innovations" are just tiny variations on things that we already have and don't make much real difference (e.g. the rounded rectangle).
2. There are lots of motivations for innovation, some of which can't be bottled, organized, or turned into policies. For example, the more idealistic scientists are motivated more by the joy of discovery than by the cash they'll get.
3. That means that trying to take a theoretical approach to creating more innovation is just plain unworkable. The one thing that seems to have worked, historically speaking, is (1) put really smart people in contact with each other, (2) make sure they have plenty of cash and whatever they need to do their work, and (3) tell them they can focus on pretty much whatever they feel like working on, just make something awesome happen. That worked in Alexandria 2300 years ago, it worked in Baghdad around 1000 years ago, it worked in London around 200 years ago, it worked in Bell Labs in the last century.

Missing the point

[Kirth]

Well, patents might behave like that. Or they might not. Because there is actually NO data on why patents should foster innovation. People (and even scientists) just think they do, but any investigations so far turned up no positive correlation. So the verdict from 1851 still stands:

Besides the caveats,
by which one man attempts wrongly to appropriate to himself the bounty
which the State gives for invention and which properly belongs to another,
the granting patents “inflames cupidity,” excites fraud, stimulates men
to run after schemes that may enable them to levy a tax on the public,
begets disputes and quarrels betwixt inventors, provokes endless lawsuits,
bestows rewards on the wrong persons, makes men ruin themselves for the
sake of getting the privileges of a patent. Patents are like lotteries,
in which there are a few prizes and a great many blanks. Comprehensive
patents are taken out by some parties, for the purpose of stopping
inventions, or appropriating the fruits of the inventions of others,
&c. Such Consequences, more resembling the smuggling and fraud caused
by an ill-advised tax than anything else, cause a strong suspicion. that
the principle of the law from which such consequences flow cannot be just.
(The Economist, 1851)

Simple fixes that would go a long way:

[Qzukk]

1. Eliminate the Doctrine of Equivalents
2. Especially with regards to "after-invented technology"

What 1 means is that if you come up with a way to do the same thing, even if you do it a completely different way, they can still sue you in court and you get to spend a million dollars proving that not only did you not infringe on their patent, you came nowhere near infringing on their patent.

What 2 means is that if someone invents something, and later someone else comes along and invents a better way to do something in the patent, it's still infringement because of fucked up court rulings that basically amount to "boo hoo the poor widdle inventors couldn't foresee this invention and shouldn't be penalized because they didn't think of it." Fuck that, if they wanted patent protection for it, they should have invented it themselves.

Oh, erm, groundbreaking?

[Ihlosi]

Let's see:

No patent protection: Everyone tries to keep their innovations secret. Innovations get lost because they're kept secret and are forgotten at some point. Inventors are kept from inventing things because it's hard to profit from their inventions, either because they're immediately copied or because of all the effort to keep them secret.

Tons of patent protection: Great, invent something once and you and your descendants are set for life (just like copyright works today). Invention is stifled because inventors have no motivation to keep inventing after their first breakthrough - they're too busy throwing money out the window.

So the sensible level of patent protection needs to be between those two extremes. Allow inventors to profit from the publication of their inventions, but keep the protection short enough to motivate an ongoing process of new inventions.

what about an public defender system for patents t

[Joe_Dragon]

what about an public defender system for patents that can be used by innovations and company's who can't pay the costs of attorneys. that can help from people being bulled by BIG company's who can / have staff attorneys that can use the court system to shut people down.

Re:The Laffer Curve?

[I'm New Around Here]

Yes Virginia, the Laffer curve (as well as our gianormous deficit) both indicate that taxes in America are too low at least as far as Mr. Laffer and his curve are concerned.

Only if you think the purpose of government is to take as much real money as possible from its citizens.

I, for one, don't agree with that basis of reasoning.