The patent system does not promote innovation and should be scaled back drastically, an economist argued at the recent AAAS Forum on Science and Technology Policy. He was immediately challenged in a lively debate by two long-time patent specialists who defended the system.
Michele Boldrin, an economist at Washington University in St. Louis, was co-author of a provocative working paper last year for the Federal Reserve Bank of St. Louis that made “The Case Against Patents.” Boldrin and David K. Levine argued that there is no empirical evidence that patents increase innovation and productivity.
To the contrary, they argued, much of the technological innovation—whether the products are cars, chemicals, radios, televisions, personal computers or investment banking instruments—has taken place in the early stages of an industry’s growth when many different players are seeking a competitive advantage and patents are not a major factor.
It is only after the early period of explosive growth and rampant innovation, they wrote, that mature industries turn to the legal protections of patents as they try to maintain a hold on markets and defend their advantages.
“Microsoft stopped being creative roughly when it started accumulating a lot of patents,” Boldrin told a 2 May session of the 38th annual AAAS S&T Policy Forum, the premier venue for discussion of issues at the intersection of science and technology with public policy.
Boldrin and Levine suggested in their paper that patents be abolished entirely, but they acknowledged that such a proposal could be seen as “pie in the sky.” At the Forum, Boldrin called for a progressive elimination of most patents, citing as a model the gradual elimination of restrictions on free trade over many decades. He said patents should be issued only in exceptional cases where the fixed costs of innovation are very high, demand is extremely inelastic, and the costs of copying a product are very small.
The patent system was created to protect new and useful innovations while providing full and timely disclosure of the advances. As an incentive to make investments in novel ideas, inventors were to be granted a period of limited exclusivity in which to sell new devices.
Under the current system, examiners have a legal duty to grant a patent if certain requirements are met. The invention must be new, useful, and adequately described and enabled. Boldrin called for a reversal of the burden of proof, with applicants required to demonstrate why they need a patent in order to succeed in the marketplace. “This is not an easy step,” Boldrin said, “but it is a reasonable policy step that could be taken.”
Stuart J. H. Graham, former chief economist for the U.S. Patent and Trademark Office and an assistant professor of strategic management at the Georgia Institute of Technology, said patents have been a useful means for protecting innovations since the founding of the nation. He disputed Boldrin’s claims regarding the negative impact of patents.
“There is a growing body of economic evidence that supports the notion that patent protections promote innovation and growth,” Graham said. He said no superior alternatives have been proposed for the existing patent system. “History is a guide,” he said. “Over time, the U.S. patent system has been met with new challenges but has always adapted.”
He said the current flurry of patent litigation over aspects of mobile devices—the so-called “smart phone wars”—is the sort of controversy that has arisen periodically throughout the history of the U.S. patent system. It does not reflect a system that is broken, he said, “but rather a patent system that has helped to cultivate a groundbreaking body of advances in communications technology, advances that have invited market entry by competitors.”
Robert Armitage, a patent attorney and former senior vice president and general counsel for Eli Lilly and Company, noted that important changes that have occurred in the patent system since the 1970s, most recently with the America Invents Act of 2011. Boldrin’s criticism, he said, “is a criticism of a patent system, basically, that no longer exists.”
Where once patent applications were considered in secret and disclosed only when the patent was issued, the process now allows the public to participate in the review process by submitting documents and commentary to patent examiners. Individuals and firms also can also challenge the validity of issued patents. “Unlike what’s happened to the Internal Revenue Code, there are transparent, objective, predictable and simple criteria for patentability,” Armitage said, and patent terms are now capped at no longer than 20 years.
Armitage also said he did not accept Boldrin’s underlying postulate that patents lead to monopolies. “In my experience,” he said, “patents lead to competition and competitors.” Referring to pharmaceutical manufacturers, he said: “I don’t think you can find an industry in which market capitalization is more dependent on patent rights.” If patent rights were removed, he said, the industry would be unable to make a profit on drugs that have high costs of development. The patent system has helped drug companies develop and market drugs, for example, that have had a dramatic effect on the long-term survival of patients with HIV/AIDS, Armitage said.
But he acknowledged that the patent system is imperfect. “In many cases, patents are necessary today, but they are not sufficient to make sure we put the best medicines on the market…Because of deficiencies in the patent system, we’re doing more research on medicines with the best patents rather than on medicines that would be best for our patients.”
Boldrin proposed that the National Institutes of Health devote its funding primarily to the costly, time-consuming and difficult phase II and phase III clinical trials required to show whether a drug has any therapeutic benefit. That would allow the drug companies to use the bulk of their resources for basic research and drug development.
But Armitage objected. “The last thing any of us in this room would want,” he said, “is the inefficiency of turning phase II and phase III clinical trials over to the government.” A pharmaceutical company must make a business case for developing new medicines, he said, and “in many situations, that case roughly corresponds to the nation’s health interests.”
Unpersuaded, Boldrin responded that it is faulty logic to assume that pharmaceutical companies will maximize social value when, under the exclusivity afforded by a patent, they pursue one drug over another. “That amounts to saying that whatever the monopolist does is good for America,” he said.
In their paper, Boldrin and Levine suggested that the government could pursue alternate policies, such as prizes, to encourage innovation and ultimately should drop the principle that the results of federally financed research can lead to private patents. As a first step, they advocated that such research results be made generally available to all market participants.