Prizes eliminate commercialization and follow on innovation

A government prize system would diminish private incentives for commercialization of inventions. Kieff emphasizes the importance of markets in stimulating commercialization of inventions. 10 7 Public ownership or common ownership of inventions would eliminate private incentives for the commercialization of inventions, as Kieff explains. 08 Common ownership of inventions also would diminish incentives for innovation to develop products, manufacturing processes, and transaction techniques based on those inventions. Additionally, common ownership would diminish marketing of products that embody inventions.

Some advocates of government contests view the discouragement of commercialization as an advantage of a prize system. For example, Love and Hubbard assert that marketing products is a "waste,"

The elimination of marketing monopolies, the de-coupling of R&D incentives from prices, and the creation of an evidence-based reward system linked to changes in health outcomes will lead to significant reductions in expenditures to market products, the area of the largest waste in the current system.109

Contrary to this assertion, marketing and sales are important coordination mechanisms in a market economy. Marketing and sales are essential for the commercialization of inventions and the development of innovations.

Government prizes for inventors would fail to fulfill the functions of IP in product markets. Markets determine the value of goods and services through interaction of supply and demand, and the same applies to inventions. John Stuart Mill) explains this clearly: "the reward conferred by it depends upon the invention's being found useful, and the greater the usefulness, the greater the reward; and because it is paid by the very persons to whom the service is rendered, the consumers of the commodity.""10

A prize system without property rights for inventors would eliminate the allocative and dynamic efficiencies of the market for inventions. Inventors would lose innovative control over their inventions, thus eliminating incentives to allocate inventions to the highest-value uses. Lack of innovative control would eliminate incentives to develop inventions, commercialize inventions, introduce innovations based on inventions, and invest in complementary assets.111

The prize system lacks all of the key features of the patent system - exclusion, transferability, disclosure, certification, standardization, and divisibility. Without these fundamental elements, the market for inventions would be highly constrained and less efficient.112 Demsetz identifies IP rights as critical for reducing transaction costs in markets for invention.113 Epstein emphasizes the importance of IP property rights in disseminating protected information. 114