The Economist Shouts: “Set Innovation Free!”

The cover story of this influential British magazine is “Set Innovation Free!”* The subtitle says what they really mean:

Time to fix the patent system.

In this blog, I’ve argued that the current patent regime retards overall innovation. It’s not aligned with empirical studies of creativity research. Patents are awarded to a single entity, as if that entity is completely responsible for the advance in knowledge. But research shows that all innovations are collaborative and distributed.

Defenders of patents will say: First, the potential reward of a patent provides an incentive to innovate. Why invest all the money in researching a new cancer drug if you don’t get the exclusive rights to market it? Second, in exchange for being granted a patent, you’re required to make your innovation public. This is supposed to help everyone else move forward faster with their own innovations.

The Economist  lead editorial argues that this is completely wrong. It cites evidence that, across industries and countries, stronger patent systems don’t lead to greater innovation. It points out that in most cases, patents never really become public, because patent lawyers have become very effective at writing complicated text that makes it impossible to tell what the real innovation is. Patents are expensive; it takes about $100,000 to go through the process of getting one. And yet, by some measures less than ten percent of these patents are ever used; the rest never make any money. So why spend the money to get patents? It’s subtle, but basically, it’s related to a finding from innovation research: that almost all new products involve tens, hundreds, of new ideas. New products are never  based on a single patent. So for lots of companies, filing a bunch of patents is a defensive strategy–it creates a “patent thicket” that prevents competitors from putting together all of the ideas they need to develop their own successful product. The current state of the technology sector is that all of the big players have their own patent thickets. So before anything new can be sold to the consumer, their lawyers have to get together and negotiate about their mutual patent thickets. (Yes, that’s the word that patent lawyers use–patent thicket. The fact that there’s such a word at all shows how big the problem is!)

The patent system rewards huge companies with deep pockets and lots of expensive lawyers. It blocks startups and entrepreneurs. Maybe there are exceptions? For example, pharmaceutical patents that emerge from university research labs, with a startup that’s funded by the university’s research office? But aren’t universities also big institutions with lots of lawyers? Patents do nothing for the little guy.

Patents are granted for too long. No technology company needs 20 years of protection for their idea. How many of you still own computers from 20 years ago?

Patents are granted for “new” “ideas” that are much too obvious: does Apple really have a patent on “rectangular tablets with rounded corners”? (Apparently, they do.) And yet, U.S. patent law says that to get a patent, your idea has to be non-obvious. I’ve written about problems with the non-obviousness doctrine here, and it’s a big topic of discussion among IP lawyers and scholars.

The Economist  cover story could be straight out of my book Group Genius:

Sharing brings huge benefits to society. Sharing leads to extra innovation. Ideas overlap. Inventions depend on earlier creative advances. There would be no jazz without the blues. Innovation today is less about entirely novel breakthroughs, and more about the clever combination and extension of existing ideas.

The chorus of creativity researchers shouts “Amen!”

*August 8-14, 2015 issue

Idea Sharing in Nonprofits

The intellectual property issues just keep coming up! (See my previous posts on IP issues.)  Maybe I should go back to law school…

This morning, I was interviewed by a team of researchers at Blekinge Institute of Technology in Sweden; they are studying collaborative innovation networks and how they can contribute to transformational change towards a sustainable society.  Then, I read an article in the New York Times, an interview with Lawrence Lessig (famous advocate of creative commons licensing and other radical changes to copyright and patent).

My discussion over Skype to Sweden was focused on nonprofit organizations (in the rest of the world, they’re called non-governmental organizations or NGOs).  Anyone who works with nonprofit organizations has noted their seeming inability to collaborate, their need to keep control over their sphere of activity.  And accompanying this is a frustrating tendency to reinvent the wheel–for multiple nonprofits to be operating in the same space, with the same mission, when their target audience could be much better served if they joined forces.  I thought that perhaps this was a uniquely American problem, so I asked if they thought Swedish nonprofits collaborated well–their response was to laugh.  In fact, they were the ones who brought up the phrase “reinvent the wheel.”  So we know at least it’s not limited to the U.S.

So how do we foster collaboration and sharing among nonprofits?  The intellectual property scholars, like Lessig, have argued that the current IP regime blocks collaboration by granting too strong an ownership right to creators.  (I argued this as well, in the final chapter of my book Group Genius.)  The ownership right (patent or copyright) allows the creator to charge whatever he or she wants for the privilege of using it, or blocking its use altogether.  Lessig has argued for mandatory licensing at a government-specified usage fee.

But when it comes to nonprofits, people aren’t motivated by profit.  The incentives are very different, and I don’t have a good understanding of what they are–genuine desire to help the underprivileged…but if that’s the motivation, then why isn’t there more collaboration?  Maybe it’s a big ego, the sincere belief that you know best how to help the underprivileged.  Maybe it’s the “founder mentality” that you see in so many venture-capital startups, where the organization is so closely identified with the founder, and the founder (who remains the executive director) has difficulty delegating or sharing authority.

I don’t think nonprofits patent their business models; I don’t think they should!  I’m thinking of a local St. Louis organization, KidSmart, that provides school supplies to students who can’t afford to buy pencils and notebooks.  There are similar organizations in cities around the country; none of them are paying royalties to the very first such outfit (and that’s a good thing). They borrow ideas from each other all the time.  But what if another nonprofit started up in St. Louis, doing the exact same thing?  Wouldn’t that be odd–why wouldn’t those folks just join on with KidSmart?  That hasn’t happened…but similarly odd things happen all the time (thus the phrase “reinventing the wheel”).

So maybe the “creative commons” is the right way to think about innovation in the nonprofit sector. (I don’t think it’s a good model for for-profit innovation, by the way.) But we need more research on exactly what motivates nonprofit volunteers and workers, and what forms of collaboration and idea exchange will result in the greatest benefit to the greatest number of needy people.

Do Patents Increase Innovation?

The answer, according to a new study, is NO.

There’s a lot of evidence that property rights in general lead to more successful economies: countries that have laws to protect individual property owners experience more rapid economic growth.  Some economists have argued that this should hold true for strong patents, too–after all, a patent is a property right, just like owning a farm or a house.  But even though strong property rights lead to higher growth, that’s not true for strong intellectual property rights.

A recent paper by James Bessen and Michael J. Meurer* collects a wide range of evidence.

Historical evidence: Most patents are granted in industries that demonstrate little innovation.  Through the 19th century, most inventions were not even patented (only 11% of British inventions displayed at the 1851 World’s Fair, for example).  A study of important innovations at the 1851 and 1876 world’s fairs found that countries with patent systems weren’t any more innovative than countries without.

Cross-country evidence: An “intellectual property rights index” was calculated for each country, and there was no relation between a country’s score on this index and its economic growth.  Increasing IP rights tend to be correlated with R&D spending, but it turns out the causality goes the other way: first a country starts spending more on R&D, and then later they increase IP rights strength.

Natural “economic experiments”: Following changes in IP law, what happens historically?  Japan increased patent scope in 1988, and this has not resulted in greater innovation nor in increased R&D spending (beyond what would have been expected without that change).  The U.S. changed its treatment of software inventions in the 1990s, but this did not result in an increase in patents by software firms.  (Instead, patents went up in companies known for “stockpiling large arsenals of patents to use as bargaining chips”.)

Surveys of companies find that most inventions are not patented; instead, companies rely on trade secrets and on their first-to-market advantage, or on complementary products and services.

The one exception is pharmaceutical companies, where patent protection seems to increase innovation.  But for other industries, it turns out that the costs of getting, enforcing, and defending a patent are much higher than the profits to be earned from it.  In 1999, for example, the total profits from patents in all U.S. public firms (excluding pharma) was about $3 billion, but their litigation costs associated with those patents were a whopping $12 billion!

The authors’ conclusion?  “in most industries today, patents may actually discourage investment in innovation.”

*Bessen & Meurer, August 2008, “Do patents perform like property?” Academy of Management Perspectives, pp. 8-20.