Search the archive.

The , by 538 and Ipsos, was conducted (using Ipsos’s ) among likely voters before and after the debate. Biden clearly lost the debate, according to their responses, but the impact on how people will vote was less dramatic: [T]urning in the best performance in a debate only matters if it translates into votes — so we also asked poll respondents (both those who watched the debate and those who didn’t) which candidates they were considering voting for after the debate. And if there was any silver lining from the debate for Biden, this was it: The face-off doesn’t seem to have caused many people to reconsider their vote. That said, Biden did lose a small share of potential voters: Post-debate, 46.7 percent of likely voters said they were considering voting for him, which was 1.6 percentage points lower than before the debate. (Note that this was not a straight horse-race poll; respondents could say they were considering voting for multiple candidates.) Trump’s support, meanwhile, barely budged, perhaps a reflection of the fact that, while Biden performed poorly on Thursday night, voters weren’t especially impressed with Trump’s performance either. The share of likely voters who said they were considering voting for Trump after the debate climbed from 43.5 percent to just 43.9 percent. Despite not participating in the debate, third-party candidates actually gained more ground than Trump: Independent Robert F. Kennedy Jr. gained 1.1 points in potential support, Green Party candidate Jill Stein went from 3.1 percent to 4.2 percent and Libertarian Chase Oliver went from 2.7 percent to 3.9 percent.

A number of basic practical considerations additionally explain why most patents never lead to a monopoly in the conventional sense.26 Firstly, a number of patented technologies just never lead to a commercial product. For instance, some worthless patents never make it to market, like the “Dining Table Having Integral Dishwasher” issued by the US Patent Office.27 Secondly, patents with commercial applications generally give rise to limited markets in the early days of implementation. And this limits the patent holder’s pricing power: to grow the market for the patented product/technology, the patent holder must make sure he keeps prices/fees at a reasonable level. The literature on innovation policy is replete with cases where patents filed for by universities lead to such a situation.28 Thirdly, as will be seen in section II, even if there is a market for a specific product which is based on a patent, the patent owner will in the large majority of cases not be able to charge monopolistic prices and reduce output at will due to the existence of substitutes. If there are substitute products on the market, a potential buyer can chose which product to buy, and he will go for the cheapest product, or for the product which he believes the most responsive to his needs. That is not only the case for smaller inventors, but also for large companies.29 Fourthly, even if (i) the patented technology makes into a product; and (ii) the product is successful on the market (possibly ending up with a monopoly position), this is not the end of the story. Patent law still seeks simultaneously to encourage R&D dissemination, incremental innovation and follow-on competition by entitling the patent holder to make money through the transfer of his technology to third parties.

A patent right is an exclusionary right. With it, the patent holder can exclude third parties from making, using, selling, etc. products or processes protected by his patent. In the past, this right has also been referred to as a ‘monopoly right’ and this has led to considerable confusion about the scope of patent rights and the role of the patent system in a modern economy. This paper seeks to provide some clarity on this issue and highlight the distinction between the exclusionary right granted by patent law and the notion of monopoly in economic regulation. Society allocates exclusionary rights to patent holders for a simple, compelling reason: to incentivise innovation. Innovation is a costly business. It requires considerable upfront investments in activities that may not yield any fruits. And innovation is risky. As soon as an innovative technology appears, anyone can copy it, and compete for a trivial cost with the inventor. Obviously, no inventor is ready to invest large sums of money absent a prospect of reasonable recoupment. Patent rights seek precisely to solve this “underinvestment” market failure. In exchange for the disclosure of his invention, the inventor receives the right to be the first to place the invention on the market, and to limit third parties’ ability to use his technology. This system is of critical importance in many sectors (for instance, in the high-tech, pharmaceutical and biotech sectors, where investments are high and the costs of replication are low). In spite of the above, a patent of itself comes nowhere close to a monopoly. From a legal perspective, a patent simply offers a market opportunity for the patentee to commercialise successfully a product implementing the patented technology. A patent is however not any guarantee at all that the patented technology will gain such massive, traction on the market, as to hold a monopoly (for instance, because there may be no market for the patented technology). Put simply, patents reward invention, not commercialisation. Similarly, a patent is not a monopoly in the economic sense. First, because in the real life, the possession of a patent does not unravel into the “single supplier” setting typical of most monopolies. Second because the vast majority of products which are based on a patent cannot be marketed at a monopoly price, for the existence of substitutes on the market allows buyers to choose amongst different products. All in all, this casts doubts on the fallacious, emerging equation that (i) patents are akin to monopolies; (ii) that holders’ patent-protection strategies are abusive; and (iii) that such strategies warrant scrutiny under the antitrust rules.

The term “monopoly” used in competition law stands miles away from the meaning of the word used in the context of IPRs. The assertions made by those who claim that patents equal monopolies are misguided. They are the joint result of historical ignorance and terminological confusion. Moreover, the patent=monopoly theorem also possibly serves a hidden bureaucratic agenda, that of limiting patent protection through the backdoor, by using ex post antitrust remedies to alter the protective – and innovation-incentivising – patent statutes adopted ex ante by elected democratic organs. Of course, this does not mean that there is no space for antitrust enforcement in markets exhibiting patented goods/technologies. For instance, some “strategic” patenting practices are increasingly scrutinized, possibly for good reason. Those strategies come under exotic labels, such as “evergreening”, “patent privateering actions”, “trolls”, “thickets”.56 As the Vice-President of the European Commission recently said: “a healthy system for the protection of intellectual property creates incentives for researchers and inventors granting them exclusive rights – within certain limits – for the commercial exploitation of their findings. But the system can be abused, which can be particularly harmful for the economy. This is why we want to prevent the trend we can observe in certain industries toward the strategic use of patents as a means to block competition”. 57 The fact that strategic patent practices exist however does not imply that the entire patent system is bad, and that its core incentivisation mechanism is broken. Competition is very valuable, but innovation is probably equally, if not more, valuable. There is abundant evidence that in certain sectors, absence of IP protection will hamper innovation, whilst the presence of IP protection will not generally lead to a monopoly. That should normally be sufficiently attractive a deal to defend IP protection. No one will deny that IP rights bring costs with them. But it is not a sound policy to do away with IP rights or at least regulate even more their use because of these potential negative effects. Courts and regulators must avoid throwing out the baby with the bathwater.

Conclusion. At this juncture, it has been recalled that the patent=monopoly theorem is false. In reality, whilst patent protection may assist in granting market power, this is contingent on a large number of factors. And unlike in other areas, the economic literature is consensual on the fact that patent rights do not grant monopoly power per se. 41 AREEDA and HOVENKAMP best summarize this: “a trademark, copyright, or patent excludes others from duplicating the covered name, work, product (etc.) but does not typically exclude rivals from the market. Accordingly, market power cannot be inferred, even presumptively, from the possession of intellectual property”.42 If patented products or technologies are successful in the market and end up providing some market power on the patent holder, this is generally not due to the patent right but to other circumstances such as lead time advantage in bringing the product on the market, successful marketing, better cost management etc.

As the competition intensifies, many policymakers and analysts are caught up in the blow-by-blow of this industrial policy race. However, by focusing on these high-profile policies, they risk overlooking a fundamental driver of innovation: a system of secure and market-based intellectual property (IP) rights. IP rights are foundational for a strong innovation system. By converting ideas into property, secure IP rights allow firms to safely license their innovations, fostering more collaboration across the economy. A secure IP system also gives market actors the confidence to share their expertise and information with others, expanding the knowledge base of the innovation system. Further, the temporary ownership of an innovation afforded by an effective patent system provides the rents and hence the incentive for entrepreneurs and investors to take on the risks of driving new ideas to the market. For these reasons, the community of inventors, entrepreneurs, and start-ups repeatedly emphasizes the importance of secure IP rights in providing a path to market entry, growth, and fair participation. This view is validated when taken in the aggregate: academic studies find that secure IP rights positively affect innovation and economic growth in developed economies

Patent Rights Incentivize Efficient Investment The most common policy argument in support of our patent system is that, assuming invention to be a social good, 51 a patent system assigns entitlements in such a manner as to incentivize productive inventive activity. 52 Unfortunately, as it is impossible to compare the two alternatives - a world with a patent system and one without - in any reliable manner, this thesis does not enjoy much empirical support. 53 But the general efficiency argument does find substantial intuitive support. Returning once again to the Patent Clause, the Constitution envisions a patent system that works "to Promote the Progress of Science and useful Arts." 54 Because of the often significant investments required for both inventive activity (the creation of an idea) and innovative activity (the development of an idea), the patent system "promotes" progress by offering an incentive for these investments - exclusive rights - an incentive that is only strengthened when the exclusive right-holder may enjoin others. 55 [*199] The award of an entitlement to an inventor secures the inventor's ability to realize a return on investment. 56 Although other regimes with different entitlements could also offer returns on investment, a patent regime does so efficiently. For example, unlike a hypothetical regime under which all inventive activities would be publicly funded but no entitlement would remain with the "inventor," a patent regime only offers returns on productive efforts. Failure is not rewarded under a patent regime. Moreover, unlike a hypothetical regime under which inventors would receive set monetary rewards for their inventions (but again, no entitlement would remain), 57 a patent regime offers variable returns, based on the market value of each invention. 58 As a result, a socially useless invention will receive little or no reward in the marketplace, while a socially useful invention may garner tremendous rewards. 59 Simply stated, under a patent regime, neither fruitless efforts nor worthless inventions are rewarded. The efficient allocation of resources in favor of valuable inventive activity thus supports the allocation of entitlements to inventors.

Despite overwhelming evidence supporting IP’s vital import, the misleading anti-IP campaign continues to influence Congress, the Biden administration, and international bodies.14 Most opponents of robust IP protection distrust big business and oppose private markets. At the heart of their opposition lies the belief that redistribution should trump growth and innovation. For them, weakening IP only hurts capitalists while helping the billions of workers and consumers around the world. For them, the impoverished masses in the developing world are hurt by IP. For them, global interests trump American interests. For them, the masses deserve free goods and services. For them, shareholders (and not employees) benefit from IP. For them, big companies benefit from IP, and not small and medium-sized enterprises (SMEs). And for them, IP hurts innovation. In other words, they know that if they are to advance their agenda of elimination of IPR they must paint IP as completely worthless, and even harmful, because it only enriches the rich and powerful. Anti-IP advocates make claims that are flat-out wrong and ignore data, the historical record, and voluminous academic evidence to the contrary. Indeed, IP creates jobs, empowers creators, and generates export revenues. It’s a nice narrative and one that anti-IP advocates and economic progressives such as the Electronic Frontier Foundation (EFF), Public Knowledge, Joe Stiglitz, Dean Baker, and Arjun Jayadev—some of the loudest opponents of IP—assert in their quest. Many people, including those who should know better, are taken in by it, usually because they are good-hearted individuals who support making the world a better place. But the claims anti-IP advocates make often are flat-out wrong and ignore data, the historical record, and voluminous academic evidence to the contrary. Indeed, IP creates jobs, empowers creators and innovators, and generates export revenues. IP also promotes creativity and provides consumers with better products and services.15

As the competition intensifies, many policymakers and analysts are caught up in the blow-by-blow of this industrial policy race. However, by focusing on these high-profile policies, they risk overlooking a fundamental driver of innovation: a system of secure and market-based intellectual property (IP) rights.

IP rights are foundational for a strong innovation system. By converting ideas into property, secure IP rights allow firms to safely license their innovations, fostering more collaboration across the economy. A secure IP system also gives market actors the confidence to share their expertise and information with others, expanding the knowledge base of the innovation system. Further, the temporary ownership of an innovation afforded by an effective patent system provides the rents and hence the incentive for entrepreneurs and investors to take on the risks of driving new ideas to the market.

In recent years, a great many studies of the real-world impact of patenting on innovation and economic growth (many available for free on ssrn.com) point to its beneficial effects. Arrow (1962), Griliches (1963), Schmookler (1966), Kitch (1977), Reinganum (1981), Tirole (1988), Klemperer (1990), Romer (1990), Giulbert and Shapiro (1990), Grossman and Helpman (1991), Aghion and Howitt (1992), Scotchmer (1999), and Gallini (2002) all found that patents foster ex ante innovation — meaning, they induce people to invent because of the prospect of reward.

Invention, it has been shown, is driven primarily not by genius or happenstance but rather by markets and the expectation of the profit that can be gained by securing the patent rights to new technologies. Zorina Khan of Bowdoin College and the late Kenneth Sokoloff at UCLA found that among the “great inventors” of the 19th century, “their patterns of patenting were procyclical [and] responded to expected profit opportunities.” And as Khan noted elsewhere, “Ordinary people [are] stimulated by higher perceived returns or demand-side incentives to make long-term commitments to inventive activity.”

Third, we reason that patent protection of AI-made inventions would boost efficiency in research and development, leading to more innovation in useful products and processes. The investors are encouraged by economic returns via licensing and sales from the exclusive patent rights in AI-made inventions. “[The] wealth-generating characteristics of innovation fundamentally justify a broad interpretation of patentable subject matter.” In the pharmaceutical industry, the best-selling drug Humira for treating arthritis made almost 2 billion for its patent owner in 2018. . Every time a news outlet reported that a drug may treat COVID-19, the holder of the drug patent would have an astonishing jump in its asset valuation The pharmaceutical companies desire the financial yield from patent rights to compensate for the expensive and long drug development process—the process usually cost billions and require 10–12 years before the drug is even placed on the market. The highly lucrative market and the efficiency boost by the AI technology would encourage the industry to engage in more AI strategies to make new inventions.

On the other hand, the labor theory provides that an inventor has an inherent right to the fruits of his labor and the patent right is awarded for the hard work that the inventor contributes to his creation. To develop an AI system, the substantial amount of work by AI professionals (including programmers, data suppliers, trainers, data scientists, etc.) deserves patent rights. The AI programmer drafts algorithms as the AI building block. The data supplier provides the AI system with data to learn from. The trainer teaches and corrects the AI system in the learning process. The data scientist assists data supplier and trainer to sort out data suitable for the AI function. A successful AI system may require labor from a large group of collaborative professionals and their consistent work through the lifetime of the system. We note the difference between rewarding patent rights and the designation of inventorship or ownership. Even with a grant of patent rights to the invention, the inventorship may not necessarily flow to the AI professionals if their contribution is not creative.

In this paper, we depart from the focus on government-firm frictions and explore (previously unstudied) distributional implications of buyouts that emerge from their public good and public financing dimensions. First, placing knowledge in the public domain in a multi-country world where not all countries contribute equally to buyout financing will result in a loss of profits for the financing country and in positive externalities for the rest of the world. Second, because buyouts are publicly financed, they may engender domestic conflict over the desired extent of tax financing, and such conflict will be influential if the government cares not simply about total welfare but about the welfare of politically important groups. In contrast, intellectual property rights finance innovation through market sales of subsequent private goods, and therefore circumscribe the externality associated with publicly available knowledge as well as the need for public financing.

In this paper, we consider two previously unstudied political economy tradeoffs that can arise due to how buyouts are financed and benefited from, and we explore how these can hinder the implementation of buyouts that would otherwise enhance global welfare. First, placing knowledge in the public domain in a multicountry world where not all countries can contribute equally to buyout financing would result in loss of profits for the financing country and in positive externalities for the rest of the world. Second, because buyouts are publicly financed, they may engender domestic conflict over the desired extent of tax financing, and such conflict will be influential if the government cares not simply about total welfare but about the welfare of politically important groups. In contrast, financing innovation through market sales of subsequent private goods (via patent power) circumscribes the global externality as well as the extent of dependence on public financing. Our results demonstrate that these global and domestic distributional issues constrain the pursuit of buyouts, potentially to the detriment of the innovating country’s and the world’s welfare. Our findings also elaborate on the interaction between the two aspects, i.e. that domestic politics can interfere with the otherwise optimal and feasible solution of a buyout internationally financed through transfers. We also discuss possibilities for, and challenges toward, institutional responses that may alleviate—albeit not completely eliminate—these distributional constraints.

The auction structure of patent buyout proposals suffers from hurdles of feasibility

Patent “buyouts” involve the government buying the patent from the innovating firm and placing it in the public domain, replacing Intellectual Property (IP) protection and associated profits with a prize for the innovator. Placing the innovation in the public domain, in theory, eradicates monopoly price distortions as well as disincentivising duplicative research. Although patent buyouts is not a new idea (e.g. the Daguerreotype photography patent was subject to a buyout by the French government in 1839) and the arguments relating to their potential benefits 2 have been documented for some time (e.g. Marshall, 1890; Wright, 1983), they have so far failed to become an established policy option. Practical barriers and difficulties associated with their implementation include funding operational costs, possible distortive rent seeking and lobbying concerns as well as considerations about which patents to buyout and the compensation for the innovator.

Patents comprised a central feature of U.S. innovation policies, and this orientation is reflected in the academic literature. By way of contrast, relatively little systematic evidence has been produced in the area of prize incentives. In the earliest such attempt, an insightful nineteenth century observer in England, Samuel Sidney, sought to determine “Whether . . . manufacturing inventions [can be] stimulated, by invitations to compete for substantial or honorary awards.”61 Sidney spent ten years investigating the data on prizes at exhibitions as well as the incentives that various societies offered for encouraging industry. His investigations led him to conclude that prizes generally tended to be inefficient, while improvements in market demand and competition offered more effective inducements for inventive activity. The prize system, he found, merely encouraged “a long list of machines which, for practical purposes, are no better than toys.”62 For instance, the market value of useful inventions tended to be far greater than any prize that could be offered, whether by private or state initiative. Even prestigious institutions such as the Royal Agricultural Society and the RSA had failed to develop truly significant inventions.63 Moreover, a candidate for a prize had an incentive to overspend on the item in an attempt to win, regardless of whether such investments were practicable in the marketplace. As a result, winners tended to be among the wealthiest of the competitors. However, Sidney found that, from the perspective of manufacturers or retailers, prizes served as a useful marketing strategy, comparable to advertisements and enhanced brand name capital. Sidney’s thoughtful assessments are all consistent with the quantitative analysis of national and international prize systems discussed here.

The other problem with a prize system is that it encourages secrecy in the research process before the prize is awarded. In order to have the best claim to getting a prize, researchers would not share their results until they have a patentable product. This could lead to much duplicative research and many pointless dead-ends. By contrast, if a condition of getting upfront funding is that all research results are made public as soon as practical then research should be able to advance far more quickly.

Patent buyouts are often proposed because they would allow ideas to circulate freely and because such access enables cumulative inventions to flourish without the transactions costs and deadweight loss that a monopolistic right of exclusion might impose. The Daguerre-Niépce method did indeed spread quickly, comprising an undoubted benefit of the French policy, but this approach to photographic reproduction was also short-lived as the dominant process in the marketplace. Instead, the English inventor William Fox Talbot independently patented a technique in 1841 through which photographic prints could be developed from negatives, and it was this approach that ultimately prevailed throughout the nineteenth and twentieth centuries, in the predigital era. The buyout of the Daguerre process also created its own problem of cumulative invention, by putting in the public domain all of the efforts of prior inventors whose work was incorporated in the Daguerreotype, without their permission and without offering them any compensation. Questions remain about whether the monetary award accurately gauged the true value of the invention, given the availability of substitutes that were not taken into account in the public accounting; the deadweight loss of taxation and redistributive effects of using public funds to benefit one group in society (photographers); and, ultimately, the incentives that such a policy creates for inefficient rent seeking and patronage on the part of inventors and their influential connections.

Second, patent buyouts could aggravate the problem of patent races and wasteful duplication of R&D expenses, as the price the patent authority would pay for a patent is typically higher than its private (commercial) value (Gallini and Scotchmer, ). Additionally, patent buyouts are a visible lump sum payment and thus are likely to be less politically attractive than the less visible patent revenues spread out over a large number of doses (Maurer, ).

In an influential series of articles, Michael Kremer argues in favor of a “patent buyout” policy, citing the example of the “Daguerreotype patent.”22 The French government allegedly purchased the rights to a patent whose social value was great and allowed everyone free access to the technology. According to Kremer’s account, “In 1839 the French government purchased the Daguerreotype patent and placed it in the public domain. Such patent buyouts could potentially eliminate the monopoly price distortions and incentives for rent-stealing duplicative research created by patents, while increasing incentives for original research.”23 The facts are somewhat different, however. Most noticeably, a search in nineteenth-century patent records reveals that Daguerre had never obtained a patent in France at any point in his life for this or any other invention. As such, there was no patent for the French government to buy out, and the case study instead highlights the incentives for unproductive “rent-stealing” that arises when returns can be negotiated through a political process. In popular accounts, Daguerre typically receives sole credit for the discovery of a method of reproducing photographic images. However, work in photography had been in progress for over a century, and arguably the most significant advances up to that date had been made by JosephNicéphore Niépce. Daguerre had formed a partnership with Niépce, who died in 1833. His heir, Isidore Niépce, agreed that for marketing purposes Daguerre should have the sole attribution rights to the joint work Daguerre had accomplished with Isidore’s father.24 The political economy behind Daguerre’s prize of August 1839 was typical of the stratagems and manipulations that French inventors often adopted to get support and payouts from the authorities.25 Instead of paying the extremely high fees for a patent, and then trying to interest licensees or assignees, Daguerre was able to secure the patronage of François Arago, a politician and influential member of the Académie des Sciences, who lobbied strongly on Daguerre’s behalf in favor of a government grant. When the inventor turned over to the Ministry of the Interior a packet with the specification and information on the discovery, Arago was involved in the process of examining and verifying its validity on behalf of the French government. In view of the “patent buyout” argument, it is ironic that Daguerre’s main plea to the French legislature was that he was unable to apply for a patent to gain benefits from the process: “Unfortunately for the authors of this great discovery, it is impossible for them to commercialize it and thereby obtain compensation for the sacrifices they have endured as a result of their long and hitherto fruitless trials. Their invention is not susceptible to patent protection. . . . It is therefore 7 necessarily the case that this process must belong to everyone or else it must remain unknown.” Daguerre argued that his idea was an unpatentable trade secret and, once it was revealed, the whole world would have free access to his ideas and he would be unable to appropriate any returns.26 As such, the choice before the legislature was for his secret to die with him and be lost to the world, or for the state to buy the information and so benefit the public. An appeal was further cannily made to the essentially mercantilist nature of the French authorities; Daguerre hinted that otherwise foreigners might make an offer that he could not refuse. The measure was quickly approved, and a lifetime annual pension of ten thousand francs was awarded for the discovery.27 At the same time, Daguerre proceeded to file for a patent in England under the name of Miles Berry (a British patent agent), giving the lie to the notion that the invention was unpatentable and reneging on the bargain that the French government would buy the discovery on behalf of the entire world.28 Daguerre and Berry then placed a true patent buyout prospectus before the British government, on the grounds that the inventor was “obliged to ask so large a sum to Individuals for Licenses that few can afford to take them.”29 As a result of this alleged myopic failure of the market to recognize the true value of the invention, the inventor wished “to solicit Her Majesty or the Government of England to purchase the said Patent right for the purpose of throwing it open in England for the benefit of the Public and preventing this important Discovery being fettered or limited by individual interest or exertion.”30 Daguerre’s British patent buyout proposal was made on March 30, 18 40; the government representative politely and tersely declined the opportunity on March 31, 1840.

It’s great to see Stiglitz raising alternatives to patents for financing research, but I would disagree with the prize for patent buyouts that he proposes as being the best alternative. I have always preferred a system of direct upfront funding, which could be done through private firms operating on long-term contracts. In response to a number of requests, here is the argument in brief. (‘s a little longer discussion.) First, I doubt very much that the prizes will typically go to the right person. As we know, and Stiglitz writes in his piece, innovation is inevitably a cumulative process. If we allow people to get patents and then have them bought up for a prize and put in the public domain, I have little confidence that we will typically give our prize to the person or company that had the key innovation. There may well be a situation where a great innovation brought research 99 percent of the way to the final product, but the main innovator was blind to the last simple step. A patent buyout system is likely to reward the last simple step, not the innovation that got us 99 percent of the way there.