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Research on the MacroEconomic Effects of Software 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.

Machlup 1958: The economic foundations of patent law: 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 concludes that the patent system on the whole probably fails to achieve its professed aims and therefore recommends a critical but cautious approach in patent policy. Countries that do not yet have this system should not adopt it. Background and Overview of the Intellectual Property Initiative: 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. Sequential Innovation, Patents, and Imitation - MIT Department of Economics Working Paper by James Bessen and Eric Maskin 2000: 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. Deepak Somaya & David J. Teece 2000-11-30: Combining Inventions in Multi-invention Products: Organizational Choices, Patents, and Public Policy: 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. 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: 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: 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. Rather it reflected the results of policy decisions taken by lawcourts, namely the CAFC: it has become increasingly easy to obtain patents and to use them to inflict damage on competitors. Moreover, under this incentive, companies have found more effective ways of organising patent committees and systematically collecting patents. Large companies usually build portfolios for defensive purposes. Some specialised technology firms are able to establish and expand a niche existence with the help of patents. The study corroborates these findings with a lot of empirical material. 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. Lester C. Thurow 1997: Needed: A New System of Intellectual Property Rights: Squeezing today's innovations into yesterday's system simply won't work The Impact of Granting Patents for Information Innovations: 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. Fraunhofer Study about the Economic Effects of 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." Tang, Adams, Paré 2000: Patent Protection of Computer Programs: 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. Information Economics and Intellectual Property Rights: US National Academies: Intellectual Property Rights in a Knowledge-Based Economy: various ongoing USAmerican research projects 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 these plans. It even says that "any plans to extend software patentability cannot claim to be based on an economic analysis". Fritz Machlup 1962: The Production and Distribution of Knowledge in the United States: A classic of the economics of knowledge, and in many ways the first book of its kind, written by a famous American economist of Austrian origin, whose earlier analysis of patent economics is cited in all relevant economics textbooks. Machlup observes that "the production of knowledge yields social benefits in excess of the private benefits accruing to the recipients of knowledge", that "the production of certain kinds of knowledge is limited by inelasticities in the supply of qualified labor" and that ordinary wisdom of market economics often doesn't work in the area of knowledge production, which is both crucial for overall economic growth and welfare and managed in an inappropriate and wasteful way, which is why Machlup found that his study was overdue. This book contains a long chapter titled "Inventive Effort and Patent Protection" which argues that patents in general fail to achieve their stated goal of promoting innovation. While most patents are held by large corporations, it is precisely these large corporations that least depend on patents for the financing of their R&D efforts. In fact the economics of oligopolistic competition determines that large corporations must spend considerable efforts to stay ahead of their competitors on R&D, no matter whether this results in a 20 year patent monopoly or not. The economics of knowledge determine that the diffusion of knowhow to competitors is usually slow enough to allow advantages gained by R&D to yield enough returns. Having patents however means that companies have to spend half of their R&D budget on managing their patenting efforts and the associated litigation. In other chapters of the book Machlup points out the limits of industrial research and explains that the above stated "inelasticity in the supply of qualified researchers" determines that research ressources generate the greatest overall wealth for the national economy when they are utilised in public-financed institutions where basic research is combined with teaching. Can Patents Deter Innovation? The Anticommons in Biomedical Research, by Michael A. Heller and Rebecca S. Eisenberg, University of Michigan Law School, published in Science, 1998 May 1;280(5364):698-701.: Economy article showing how the generalization of patents hinders innovation in the biology area. Antitrust Policy, Innovation Efficiencies, and the Suppression of Technology, by John J. Flynn, College of Law, the University of Utah, published in the Antitrust Law Journal, 1998.: Documented and thorough economy article on monopolies generated by patent abuse, not only in the software domain. 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. Bernard Lang: Annotated Links on the Software Patentability Debate: contains a long list of commented references to studies on swpat economics Looking at Angels: Attempt at finding a new basis of macro-economic legitimation for the patent system: patents as a means of capital concentration at the stock and venture capital market. If it can be proven that capital concentration is good for innovation, then patents are in so far good for innovations