The problem is that while this is certainly true sometimes, in many, many, many other cases -- it's not the way it works at all. Instead, the paper goes through a whole bunch of studies suggesting that quite frequently innovation happens through a very different process: either individuals or companies directly trying to solve a problem they themselves have (i.e., the initial motive is not to profit directly from sales, but to help them in something they were doing) or through a much more collaborative process, whereby multiple parties all contribute to the process of innovation, somewhat openly, recognizing that as each contributes some, everyone benefits. As the report notes:
This result hinges on the fact that the innovative design itself is a
non-rival good: each participant in a collaborative effort gets the value of the whole design, but
incurs only a fraction of the design cost.
But, of course, patents are designed to make that sort of thing more difficult, because it assumes that the initial act of invention is the key point, rather than all the incremental innovations built on top of it that all parties can benefit from. In fact, the report points to numerous studies that show, when given the chance, many companies freely share their ideas with others, recognizing the direct benefit they get. This flies in the face of (unsubstantiated) claims by patent system supporters that the patent system is needed to disclose and share inventions. In fact, the evidence suggests that in many cases, firms will willingly share that information anyway (for a variety of reasons detailed in the report) without requiring the 'prize' of a monopoly right to do so.
Even more importantly, the paper finds that due to technological advances and the ability to more rapidly and easily communicate and collaborate widely, these forms of innovation (innovation for direct use as well as collaborative innovation) are becoming more and more viable across a variety of industries, which in the past may have relied more on the old way of innovating (single company innovative for the profit of selling that product). And, in fact, because of the ease of communication and collaboration these days, there's tremendous incentive for those companies that innovate for their own use to collaborate with others, since the benefit from others improving as well help improve their own uses. Thus, the overall incentives are to move much more to a collaborative form of innovation in the market. That has huge implications for a patent system designed to help the 'old model' of innovation (producer inventing for the market) and not the increasingly regular one (collaborative innovation for usage).
Of course, no one is saying that producer-based innovation (company inventing to sell on the market) doesn't occur or won't continue to occur. But it is an open policy question as to whether or not our innovation policies should favor that model over other models -- when evidence suggests that a significant amount of innovation occurs in these other ways -- and that amount is growing rapidly.
The paper points out that the 'devil's bargain' of granting monopoly rights in order to create incentives for producer-driven innovation makes less and less sense:
The work in this paper and that of many others, suggests that this traditionally-struck
'devil's bargain' may not be beneficial. First, there is increasing evidence that intellectual
property protection does not increase innovation. As we saw in section 2.2, studies carried out
over 40 years do not find that firm managers are inclined to increase their innovation
investments due to the availability of patent grant protections. There are also many examples in
which strong intellectual property rights may have impeded subsequent progress (Dosi,
Marengo and Pasquali, 2006; Merges and Nelson, 1994). Indeed, recent empirical work has
actually shown a negative relationship between patenting and subsequent progress in both
biotechnology (Murray and Stern 2007) and software (Bessen and Meurer 2008). Second, the
ascendent user and open collaborative innovation models that we have discussed in this paper
mean that alternatives that are open by participants' free choice -- and to the economic benefit of
those participants -- are now ascendent alternatives to the traditional, closed producer
innovation model. And openness, as we noted above, increases social welfare, other things
equal.
The paper concludes with some policy recommendations, seeking to have the government look for ways to encourage more collaborative and open innovation, such as by supporting more open licensing programs directly (such as open source licenses), though I'm not sure what specific support the government really needs to do there. It also suggests that net neutrality actually plays into this as well -- as one of the reasons why there is greater collaboration is that a neutral network infrastructure made that possible. Removing network neutrality could limit the ability to collaborate, and because of that, the social benefit found from such collaborative projects. Again, I'm not convinced that any ISP would go so far as to restrict communication to that level, but it is an interesting note.
Either way, it's yet another study that suggests our patent system is tremendously obsolete in terms of actually promoting the progress, and is set up in a way that favors a concept of innovation and invention that may not be how the world actually works.
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