- The Washington Times - Sunday, December 20, 2009

ANALYSIS/OPINION:

Modern patent law first appeared in Venice in 1474. As the ideas in the Venetian law spread around the world, we have witnessed waves of innovative activity, across nations and over time, enriching human society beyond anything imagined by the drafters of the Venetian statute.

Recently, economists David Levine and Michael Boldrin, together with other skeptics of patent law, have launched a campaign to uproot the more than five centuries of international legal heritage in intellectual property rights. This well-intentioned campaign is grounded on a belief that patent rights do not increase innovation and so are not worth their cost.

The skeptics’ approach is based on a flawed understanding of the economics of innovation and empirical literature on patent law’s impact. While no country’s patent law is perfect, the defects demand deft repairs, not execution.

Patent skeptics’ first mistake is failing to appreciate differences in industries’ responses to patents’ incentives. These differences demand a nuanced approach rather than the one-size-fits-all regime the skeptics favor. For example, the chemical process and communications equipment industries respectively prefer trade secrets and lead time to market to protect their intangible assets, relying less on patents.

But for pharmaceuticals and medical equipment, the evidence is overwhelming that patents provide critical incentives for innovation. Without the potential economic rewards and ability to facilitate commercialization provided by patents, who would invest the millions of dollars needed for the development of new drugs, medical equipment and medical devices? Patent-driven innovation creates the drugs that patent skeptics often described as locked away from the world’s poor by patent law.

It is sadly ironic that the skeptics’ effort to provide access to essential medicines by eliminating patent rights would destroy the system whose incentives yielded those medications. Access to essential medicines is important, but disincentivizing drug innovation is counterproductive.

It is far better to address the issue through international organizations like the World Trade Organization. While more needs to be done, WTO member nations, medical charities and pharmaceutical companies have made significant progress in recent years in designing a regime that both preserves incentives and addresses developing countries’ need for inexpensive drug access.

A second error common among skeptics is their failure to appreciate that patents provide more than incentives for innovation. Recent studies of start-up companies reveal that patents can play an important role in securing venture capital, capture revenue through licensing and enhance reputational value. Other studies have found a positive linkage between patent rights and foreign direct investment in larger and advanced developing countries and shown that stronger patent rights facilitate enhanced technology flows and licensing activity across countries. All these are critical to delivering the benefits of innovation to ordinary people by commercializing it.

Third, skeptics often forget that patent law balances rewarding early innovators and enabling later ones to create improvements by limiting patents in both time and scope. Limited scope means patents rarely provide their owners with an effective economic monopoly, as there are almost always viable substitutes available. Patents’ role as coordination tools enhances the flow of technology and further offsets the impact of the temporary legal monopoly.

For example, in information technology and life sciences, patent holders engage in considerable licensing activity, privately solving the problem of access. A recent National Academies of Science survey concluded that in both “the number of projects abandoned or delayed as a result of technology access difficulties is reported to be small” and that few investigators had to “revise their protocols to avoid intellectual property complications or pay high costs to obtain access to intellectual property.”

Patent protection is not costless, of course. The question is whether the costs buy even greater benefits. At least with respect to some vital industries and larger and more advanced developing nations, we have strong evidence that patent protection satisfies that test by providing crucial incentives for innovation and technology flows.

While our patent laws can undoubtedly be improved, destroying widely held, valuable property rights in pursuit of short-term gains would kill the goose that lays the golden eggs. Neither the world economy nor its poor could afford such an ill-conceived uprooting of rights deeply embedded in legal systems around the Earth.

Craig A. Nard is a professor of law at Case Western Reserve University in Cleveland. Andrew P. Morriss is a professor of law and business at the University of Illinois, Urbana-Champaign.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide