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Research on the MacroEconomic Effects of Patents Since Fritz Machlups report to the US congress of 1958, a considerable number of studies about the economic effects of the patent system has accumulated. Some studies deal with certain types of innovation (sequential, complex systems) or with special areas such as semiconductors, genetics or computing rules (algorithms, mathematics). None seems to claim that the patent system has a positive effect on innovation in these fields. Most find strong indications for negative effects. Some governmental studies (e.g. by intellectual property institutes and the like) combine such negative findings with a recommendation to legalise software patents.

	European Commission wants Unlimited Patentability! Directive Draft by BSA
	Counter-Proposal
	Call for Action

Machlup 1958: An Economic Review of the Patent System Report to the US congress from 1958, which also extensively narrates the history of the patent movement and of earlier economic research on this subject. Machlup, a renowned American economist of Austrian origin, is the first author of a large treatise on knowledge economics and other treatises which belong to the teaching repertoire of economics departments in universities. His report cites a wealth of historical and economic evidence to refute most of the reasoning used by lawyers to legitimate the patent system. Intellectual Property Initiative 2000 A large british research project which concludes that the patent system as it stands in the year 2000 is in general less than helpful an instrument for fostering research and development in small and medium enterprises. Bronwyn H. Hall & Rose Marie Ham: The Patent Paradox Revisited This article is written by two researcher from MIT and concludes, after giving mathematical models and experimental evidence, that in a dynamic world such as the software industry or consulting industry, firms may have plenty of incentive to innovate without patents and patents may constrict complementary innovation. It concludes that copyright protection for software programs (which has gone through its own evolution over the last decade) may have achieved a better balance than patent protection. This new model suggests another, different rationale for narrow patent breadth than the recent economic literature on this subject. Bronwyn H. Hall & Rose Marie Ham: The Patent Paradox Revisited Detailed study of the transfer costs generated by the patent system under various conditions, written by Deepak Somaya, economist at the University of Maryland, and David Teece, senior colleague at Univ of California in Berkely. Not surprisingly, the study finds the transfer costs that arise in complex systems very high and examines various strategies for reducing these costs at the micro- and macro-economic (public policy) level. Waterson & Ireland: An Auction Model of Intellectual Property Protection: Patent vs Copyright Michael Waterson and Norman Ireland, economists from the University of Warwick, constructs a parametrised game model to simulate the innovation game under a regime of pharma patents, plant variety protection, software patents and software copyright as well as many other situations. The model contains some simplifications that work in favor of patents. E.g. it does not consider monopoly-based welfare losses, which are at the center of many economic analyses of the patent system. Instead its social welfare is simply the aggretation of the potential players expected utilities. Also it does not consider the need for modularity and interoperability in the software world. Yet, the model depicts many observable phenomena quite well, and it leads to the conclusion that software patents have a negative effect on innovation while pharma patents and software copyright has a positive effect. Stimulating competition and innovation in the information society A systematic introduction to intellectual property rights, software economics and the interaction of the two. The beginning chapters provide very good introductory reading, the final chapters present proposals to European politics. The website contains links to many studies. J.P. Smets 1999: Software Useright: Solving Inconsistencies of Software Patents A mathematical model describing the economic effects of sofware patents and a concept for solving some of the problems: the distinction between copyright and useright. Bronwyn H. Hall & Rose Marie Ham: The Patent Paradox Revisited Study on Software Patents carried out by British researchers at the order of the European Commission's General Directorate for Enterprises. The findings of this study are partially based on the ESRCIP project (see above). It's purpose is to find out how software SMEs deal with Intellectual Property Rights in general and patents in particular, how useful patents are for them and what can be done to raise patent awareness. The study finds that we are not in a "pro-patent era" but rather in a "pro ipr area", and that software patents are not very much appreciated by software SMEs and probably not very helpful for them. Fraunhofer/MPI 2001: Economic/Legal Study about Software Patents In 2001-01, the German Federal Ministery of Economy and Technology (BMWi) ordered a study on the economic effects of software patentability from well known think tanks with close affinity to the German patent establishment: the Fraunhofer Institute for Innovation Research (ISI.fhg.de), the Fraunhofer Patent Agency (PST.fhg.de) and the Max Planck Institute for Foreign and International Patent, Copyright and Competition Law (MPI = intellecprop.mpg.de). The study was largely concluded in 2001-06 and preliminary results were presented to a selected audience. The final report was published by the BMWi on 2001-11-15. The study is based on an opinion poll answered by several hundred software company representatives and independent software developpers, conducted by Fraunhofer ISI. Most respondents have had little experience with software patents and don't want software patents to become a daily reality like in the US. The poll also investigated the significance of open source software for these companies and found it to be of substantial importance as a common infrastructure. Based on these findings, the Fraunhofer authors predict that an increase in the use of software patents will put many software companies out of business and slow down innovation in the software field. The study then jumps to conclude that software patents must be legalised and SMEs must be better informed about them. This surprising conclusion is drawn by the patent law scholars from MPI. The MPI's legal study does not explore any ways to redraw the borders between patents and copyright but just takes the EPO and USPTO practise as an inevitable reality. They find that the EPO's caselaw is contradictory and chaotic and blame this on Art 52.2c EPC, which they say has failed to provide clear guidance and should therefore be deleted. Business related algorithms are, they say, less likely to be patented at the EPO than algorithms that "stand in a tradition of engineering". The MPI writers however do not try to provide a clear rule for distinguishing the two, and they oppose the idea of drawing a line between the physical and the logical ("technical inventions" vs "rules of organisation and calculation") as done by lawcourts in the 70s and 80s, asserting that information is also a physical phenomenon. They propose that all legislative power concerning the limits of patentability be handed over to the EPO, which should then, at its discretion and as far as Art 27 TRIPS allows, consult experts of interested parties for regular rewriting of its Examination Guidelines. Art 27 TRIPS demands that patents be "available in all fields of technology", and the MPI understands "technology" as "the useful arts" and is careful not to mention Kolle and other European theoreticians of the concept of technical invention. Summarily the study can be summarised as "Fraunhofer: software patents are unpopular in the software industry and dangerous to innovation and competition. MPI: Fine, so let's legalise them quickly." IPI 2000: The Economic Impact of Patentability of Computer Programs A pro software patentability study by the London Intellectual Property Institute, ordered by the Industrial Property Unit at the European Commission, finished in spring 2000, held back until Oct 2000. The name is misleading: this is not an economic study. There are no independent economic data and no economic analysis. Instead there is a legal analysis which echoes the viewpoint of the UK lobby in the Industrial Property Unit at the General Directorate for the Internal Market at the European Commmission. It was written by reliable comrades of this lobby who were directly involved in the software patentability advocacy, such as Robert Hart and Drummond Reed. Although this study applauds the Indprop unit's plans of legalising software patents and goes long ways to create confusing interpretations of these plans, it does not give any reasons that could justify software patents. It even says that "any plans to extend software patentability cannot claim to be based on an economic analysis". Daniel Probst: Software-Patentability from a macro-economic point of view Dr. Probst is conducting research on the economics of the patent system at Mannheim University. In this position paper submitted to a hearing of the German Federal Parliament on 2001-06-21, he argues that patents monopolies are, depending on their field of application, viewed by economists as a more or less necessary evil and that much of the conventional wisdom about the effects of patents is wrong. Moreover, in the field of software there is little necessity and much evil in patents. Evidence and studies accumulated so far suggest that software patents negatively affect the total productivity and innovativity of the concerned industries. For a field such as software, the best thing the state can do to foster a productive climate is to invest in basic infrastructures such as network backbones and education. Bronwyn H. Hall & Rose Marie Ham: The Patent Paradox Revisited Research work done at Univ. of California, Berkely, published 1999 by National Bureau of Economic Research Inc. Finds that the surge in patents in the semiconductor industry in the 1980-90s does not reflect a surge in R&D activity. Kortum & Lerner 1998: What is behind the recent surge in patenting Since the late 1980s, the number of patents granted to US companies by the USPTO has sharply risen. Many people believe that this is due to a more patent-friendly policy created by political changes in the early 80s such as the Bayh-Dole act and the institution of the Court of Appeal for the Federal Circuit (CAFC). This study collects statistical data to suggest that a surge in patentable innovation and an improvement in patent-oriented innovation managment may be more important causes. It also shows that software and biotech, while considered to be the most important areas of innovation, still amount for a total of only about 5% of the US patents. While patent-oriented innovation was on the rise, R&D investments on the whole dropped. This is one of a series of studies by Samuel Kortum and Josh Lerner from the Department of Economics of Boston University. Bronwyn H. Hall & Rose Marie Ham: The Patent Paradox Revisited Bronwyn H. Hall & Rose Marie Ham: The Patent Paradox Revisited According to this report by the US National Research Council, software patents were introduced by lawcourt decisions without support from the legislature, and it seems doubtful whether the patent expansion is promoting the progress of science and the useful arts, as Congress intended. The Court of Appeal of the Federal Circuit (CAFC) has taken the patent system into "unchartered waters", and the experience of the software industry suggests that this decision is urgently awaiting legislative review. Mandeville et al 1982: Economic Effects of the Australian Patent System A Commissioned Report to the Industrial Property Advisory Committee. Contains statistics about the use of the patent system as a source of information and as a source of revenues. Its general reasoning and conclusions are similar to those of most economists, especially Fritz Machlup. Some quotations: Since the benefits of the patent system are so tenuous and subtle and the overall benefit/cost ratio is considered to be negative, there is no economic justification for extending patent monopolies by lengthening the term, or by widening the grounds for either infringement, or patentability (for example, plant variety rights or computer programs). However, in the light of our findings, there is considerable economic justification for policy action to reduce the negative effects of the patent system by stricter examination, by reducing the length of term and the scope of patent monopolies, and by action to deal with undesirable restrictive practices in patent licensing. An historical awareness of the political economy of patent reform suggests that this task is not easy at the domestic policy level. This is basically because those who perceive they would lose by such reform are concentrated, powerful and active defenders of their interests. In contrast, those who would gain by patent reform are diffuse and hardly aware of their interest in the matter. Apparently for the latter reason, this report shys away from officially recommending what the facts really suggest: abolishing the patent system. Only a few years later, the Australian Patent Office decided to make "software-related inventions" patentable. Bronwyn H. Hall & Rose Marie Ham: The Patent Paradox Revisited Guardian 2002-03-12: Patent Nonsense Monbiot.com report about industrialisation without patents, quoting historian Eric Schiff to argue that countries without the patent system fared better and that the decision for introducing this system was due to political pressure from patent lobbies rather than to economic considerations Maastricht University Portal on Information Economy and Intellectual Property This site exhibits a collection of study reports, several written in 2001, under titles such as "Intellectual Property Rights in a Knowledge Based Economies" about the impact of patents, copyright and other exclusion rights on the production of information. All these reports express concern that these rights may on the whole have been on the whole doing more harm than good, and software patents are cited as extreme examples. These reports are part of a larger endeavor of research about the economics of information, involving the Maastricht Economic Research Institute on Innovation and Technology (MERIT), which has since the 1980s gradually become a European center for studies in this field. Can Patents Deter Innovation? The Anticommons in Biomedical Research article by Michael A. Heller and Rebecca S. Eisenberg, University of Michigan Law School, published in Science, 1998 May 1;280(5364):698-701. Show how the generalization of patents hinders innovation in the biology area. Antitrust Policy, Innovation Efficiencies, and the Suppression of Technology Article by John J. Flynn, College of Law, the University of Utah, published in the Antitrust Law Journal, 1998. In depth analysis of the effects of monopolies generated by patent inflation in general. US National Academies: Intellectual Property Rights in a Knowledge-Based Economy various ongoing USAmerican research projects Paris 2002/06: Papers for ``Frontiers of Ownership in the Digital Economy'' Papers presented by the participants at a seminar held in Paris in June 2002, among them many economists and social scientists from the US. TIIP: Technological Innovation and Intellectual Property An attempt by several economists in the US to keep track of research on the impact of patents on information innovation by writing occasional reviews of articles. Founded in early 2002. Several issues have appeared. FTC 2002: Hearings on Anti-Competitive Effects of Patents In the USA, recent trends toward extensive patentability and rigid IP enforcement laws have given rise to complaints about chilling effects on innovationn and competition. In particular, concerns were raised about standardisation being disrupted by patents. Some people proposed to mandate by law that that standards be freely available and that any relevant submarine patents be disclosed early. In spring of 2002 the Federal Trade Commission conducted an expert hearing on this subject. Representatives of standardisation bodies explained that the proposed legal requirements could backfire, because they would deter companies from participating in standardisation. Some economists and programmers asked for restrictions on what can be patented or how patents can be used. Representatives of the USPTO and patent lawyers argued that everything was just fine and competition law should not interfere with patent rights. FTC has published many testimonies and reports as PDF files on its website. We are presenting an overview of these texts and what can be learnt for them for the patentability discussion. Bernard Lang: Annotated Links on the Software Patentability Debate contains a long list of commented references to studies on swpat economics Le Monde: entretien avec Joseph E. Stiglitz Article in Le Monde in which Nobel Prize in economy 2001 Joseph E. Stiglitz says that the TRIPS intellectual property regime is detrimental to innovation and economic growth. Krummenacker 2000-05-18: Are "Intellectual Property Rights" Justified? An assessment of the merits and demerits of patents, copyright, trademark and business secrets in view of the needs of an information economy. Describes models for generating revenue which do not require patentsand copyrights. This text is well readable and cites economic studies but is more of a libertarian manifesto than an economic study itself. Problems with the current Intellectual Pseudo "Property" (IPP) System, specifically with Patents An outline of some of the problems and the spectrum of positions taken by various parties. Then, an attempt is made to extrapolate into the future a bit in four scenarios, to see what the world might look like under different patent regimes, ranging from no patents at all to much more severe restrictions than today. If these scenarios are accurate in their implications, they could help us define which future we might find desireable and acceptable to live in, which will hopefully encourage us enough to take appropriate steps towards implementing and shaping the corresponding legal landscape. The four scenarios are "Stand on each others shoulders -- no patents", "stand on each others feet -- unlimited patentability", "restricted patentability", "replace patents by innovation tax". Françis-René Rideaux: Patents Are An Economic Absurdity Another liberal manifesto against the patent system, with detailed economic argumentation and interesting references LPF Irlam: Quotes on Software Patents see also Quotations on the question of the patentability of rules of organisation and calculation Survey of recent studies on economic effects of logic patents Short reviews of recent studies, published on the FICPI (patent lawyers association) website, points out limitations of these studies, especially of Bessen & Maskin, and creates the impression that all evidence is inconclusive. Yet quite informative.