Some Economics of Patent Protection

Transcription

1 Prof. Dr. Uwe Cantner Friedrich Schiller University Jena Chair of Economics / Microeconomics uwe.cantner@uni-jena.de Some Economics of Patent Protection FIW Conference, Innsbruck Feb 27, 2009

2 FAZ 1980s What are the reasons for Germany s weakness in producing innovative output? Is it due to the lack of strong intellectual property rights? Or is it due to the lack of creative and well educated scientists, engineers and entrepreneurs? 2

3 Contents 1. Introduction 2. The production of innovations I 3. Homo oeconomicus, market failure, and patent protection 4. The production of innovations II 5. Homo creativus, the creation of new ideas, and appropriation. Conclusion 3

4 Recent developments I 4

5 Recent developments II Strengthening of patent protection easy court access new areas (biotech, software, business methods) university patents international adjustments Controversies about the design of the patent system further strengthening of the system weakening of the protective belt or even abolishment of patent protection at all 5

6 The production of innovations I A first view Resources and the production of new knowledge investment in the search (R&D) for a new idea/combination Aim of the innovator positive returns on R&D investment earning some profit/rent on the new idea rent production costs R&D sales innovator

7 Homo oeconomicus, market failure, and simple, discrete innovations Market situation public good feature of the new knowledge (Arrow 192) retaining incentive to invent / innovate Solution patent system as IPR (Nordhaus 199) monopoly as resulting market structure imitator production costs production costs R&D innovator new idea information 7

8 Cont d Effect of (stronger) patent protection innovator innovation in general competition Incentives for R&D simple/discrete innovation Degree of Protection 8

9 Homo oeconomicus, market failure, and sequential & complex innovation Resources and the production of new knowledge continuous investment in the search for new ideas / new knowledge additionally: Knowledge embodied in previous innovations (e.g. Bessen/Maskin 2002) previous innovation Production costs production costs R&D new idea R&D new idea Innovator 1 in time t Protection n periods Innovator 2 in time t n Protection n periods 9

10 Cont d Effect of (stronger) patent protection innovator innovation in general competition Incentive for R&D in tn simple/discrete innovation sequential innovation? Invention from t Invention in tn Degree of Protection n 10

11 The production of innovations II A second view Resources and the production of new knowledge investment in the search (R&D) accumulated knowledge and competencies (Teece et al. 1988) creative capabilities Aim of the innovator positive returns on R&D investment earning some profit/rent on accumulated knowledge and creative capabilities Imitator often less than perfect abilities to understand knowledge generated elsewhere (absorptive capabilities) (Cohen/Levinthal 1989) information knowledge 11

12 Homo creativus, the creation of new ideas, and appropriation Market situation Not necessarily public good feature of the new knowledge but latent public good (Nelson 1990) private good (tacit knowledge) (Polany 197) incentive to invent / innovate? Patent protection questionable production costs imitator production costs R&D new idea absorptive capacity innovator knowledge & creativity 12

13 Costs of Imitation Costs of imitation in % of costs of innovation (Wagner, Mansfield, Schwartz 1981) # of cases chemistry pharmacy electronics / machinery 0 < >100 %-classes 13

14 Effectiveness of Patenting I % of innovations for which the respective measure of protection has been considered effective (Cohen et al. 2000) % of R&D performing firms that give their highest rating to each appropriation method (Arundel 2001) patents patents other legal rules design registration secrecy secrecy lead time lead time additional services complexity compl. production knowledge process innovations product innovations product innovations process innovations 14

15 Effectiveness of patenting II Effectiveness of Appropriability Mechanisms for Process Innovations (% of respondents) Effectiveness of Appropriability Mechanisms for Product Innovations (% of respondents) Mechanism 1st 2nd 3rd 4th 5th Mechanism 1st 2nd 3rd 4th 5th Yale Survey 1983 Yale Survey 1983 Patents Patents Secrecy Secrecy Lead time Lead time Sales & services Sales &service Carnegie-Mellon Survey 1994 Carnegie-Mellon Survey 1994 Patents Patents Secrecy Secrecy Lead time Lead time Sales & service Sales & service Manufacturing Manufacturing

16 Reasons to patent Reasons to patent: % of respondents by reason (Cohen et al. 2000) 0,0 20,0 40,0 0,0 80,0 100,0 prevent copying licensing revenue prevent suits blocking enhance reputation for use in negotiations measure performance product innovations process innovations 1

17 Homo creativus and the effects of patent protection Effect of (stronger) patent protection protection aspect innovator innovation in general competition simple / discrete innovation homo oeconomicus sequential innovation? discrete product industries / homo creativus complex product industries / disclosure / signaling aspect innovator innovation in general competition homo creativus systemic innovation? 17

18 Conclusions One size fits all rules are not appropriate Differentiated picture with some sectors requiring (strong) patent protection other sectors could also go without Importance of the disclosure and signaling function asks for patent protection but the strength could be considerably low How to implement such a differentiated systems? probably too ambitious probably requiring a much larger legal apparatus 18

19 Thank you for your attention! 19

20 Back-up If national patent laws did not exist, it would be difficult to make a conclusive case for introducing them; but the fact that they do exist shifts the burden of proof and it is equally difficult to make a really conclusive case for abolishing them. Edith Penrose, The Economics of the International Patent System (1951) If we did not have a patent system, it would be irresponsible, on the basis of our present knowledge of its economic consequences, to recommend instituting one. But since we have had a patent system for a long time, it would be irresponsible, on the basis of our present knowledge, to recommend abolishing it. Fritz Machlup, An Economic Review of the Patent System, Study No.15 of Committee on Judiciary, Subcommittee on Patents, Trademarks, and Copyrights, 85th Cong., 2d Sess. (Comm. Print 1958) 20