Costs of intellectual property

This page attempts to list the costs and detrimental effects of Intellectual property.

Legal costs
Companies pay patent attorney salaries, patent filing and maintenance fees, and significant litigation costs (it can easily cost over a million dollars to defend from a patent infringement lawsuit, even if you win), as well as higher insurance premiums due to the risk of being involved in patent infringement litigation. Some patents that should not have been granted, and others whose coverage is ambiguous, plus the unknown existence of some hidden patent lurking in the thousands granted to date, pose significant uncertainty to companies, especially high-tech start-up companies who cannot afford to risk a patent infringement lawsuit from a more established company. They might not even be able to afford to pay the patent attorneys to examine and issue an opinion regarding every potential patent issue that arises. So the company either forges ahead, risking a lawsuit, or decides to avoid making the product out of fear of litigation.

In a December, 2010 article, Forbes summarized the significant costs of IP:


 * $10 million Cost to defend a high-stakes patent suit
 * $3.8 million Median damages awarded in patent infringement cases from 2001-07
 * 482,871 Patent applications filed in 2009
 * 191,927 Patents issued in 2009
 * 2,700 Average number of patent-infringement lawsuits filed per year
 * $1,000 Hourly rate charged by top patent litigators
 * 100 Average number of patent cases that go to trial each year
 * 57% Percentage of trials won by patent holders
 * 34.6 Average number of months to secure a patent

Non-practicing entities and patent trolls
There are companies that make no products and whose only business is to acquire patents in order to enforce them against large industry segments. Non-practicing entities (NPEs) can, in principle, perform the socially valuable function of facilitating markets for technology. Some inventors lack the resources and expertise needed to successfully license their technologies or, if necessary, to enforce their patents. NPEs provide a way for these inventors to earn rents that they might not otherwise realize, thus providing them with greater incentives to innovate.

On the other hand, critics, including many technology firms, compare these NPEs to the mythical trolls who hide under bridges built by other people, unexpectedly popping up to demand payment of tolls. The critics call these NPEs "patent trolls," claiming that they buy up vaguely worded patents that can be construed to cover established technologies and use them opportunistically to extract licensing fees from the real innovators. To the extent that the recent NPEs opportunistically assert "fuzzy patents" against real technology firms, they can decrease the incentives for these firms to innovate.

A 2011 paper argues that defendants to lawsuits by NPEs have lost over half a trillion dollars in wealth from 1990 through 2010 — over $83 billion per year during recent years. While the lawsuits might increase incentives to acquire vague, over-reaching patents, they do not increase incentives for real innovation. The defendants in these lawsuits are firms that already invest a lot in innovation. Their losses make it more expensive for them to continue to do so and it also makes them less willing to license new technologies from small inventors. Meanwhile, independent inventors benefit very little from what the large companies lose.

In July, 2011, The Guardian reported that app developers are withdrawing from the US market out of fear of patent lawsuits, which can be expensive for developers to defend even if they are successful. The growth of patent lawsuits over apps raises serious issues for all the emerging smartphone platforms, because none of the principal companies involved - Apple, Google or Microsoft - can guarantee to protect developers from them.

For a different example in the music industry, the so-called "sampling trolls" sue successful music artists for routine sampling, no matter how minimal or unnoticeable. Some music genres, like hip-hop and rap, heavily use sampling. Artists have sometimes combined and mixed thousands of sounds in a single album. That makes sense musically, but it is problematic legally. Thousands or even hundreds of samples would mean thousands of copyright clearances and licenses. If clearing rights would cost a fortune, music production would become that much more expensive, and innovative music that much riskier a bet.

Hostility to customers and innovations
The music industry in particular and the broader copyright-dependent entertainment industries in general are in decline. Their profit margins are going down, and they don't like it. The consumers aren't as pleased with their products as they once were. The seemingly rational course of action for the industry is to look into why consumers aren't pleased with their products, see what they can do better, innovate, and drop their prices to increase demand.

That is not what the industries (like the members of the IFPI and MPA) do, however. In fact, not only are they unwilling to innovate, they have gone to the extreme of starting to sue their own potential and real customers. That doesn't seem to be a good way to gain favour with customers.


 * The industries have always been afraid of new technology. The radio, the player-piano, the phonograph, the VCR, cassette tapes etc. were seen as threats by the industry, which responded by attempting to restrict sales and ownership, unwilling to experiment and find new ways to fulfill customer demand. Apple practically had to force iTunes onto the market, the record labels weren't willing to go along with it at first. They weren't willing to only sell individual songs, they wanted whole albums sold.


 * One glaring example of the entertainment industries' fear of technology was ex-MPAA president Jack Valenti's 1982 statement to a U.S. Congressional panel: "I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone." VCRs went on to become one of the biggest profit sources for Hollywood in history, and DVDs and Blu-Ray discs later filled the VCR's role.


 * The attempts to shut down various file-sharing networks ended up to be free publicity for the movement. For example, ThePirateBay, a Swedish BitTorrent (a popular file-sharing technology) tracker and search engine, was attempted to be shut down multiple times by various governments, as well as many national government attempting to ban Internet providers in their respective countries from allowing their users to access the site. Every single attempt has been met with ridicule, and ThePirateBay's user base grew exponentially as a result of the publicity.

All of these elements combine to form a highly unfavourable impression of the copyright industry in consumers' eyes. Technology is making traditional entertainment industry business models obsolete. Instead of innovating, the industries are using the hammer of government to force their customers to comply with 1970s business models – and now those customers are rebelling. As a result, the measures applied by governments to coerce them just keep getting more and more draconian.

Patents as a Hindrance to Technical Progress
In practice, the patent system often hinders technical progress. In the automobile industry, for instance, Henry Ford did not own the patent over the automobile, and had to fight against the patent’s owners, who constituted a closed cartel and were not interested in mass production of inexpensive models.

Henry Ford was denied a license on the ground that he had not demonstrated his competence, and when Ford persisted in producing cars, the cartel immediately brought a lawsuit against him for infringement of the patent. The suit was ultimately decided in Ford’s favor in 1911 and the cartel disintegrated.

Another interesting case is the early history of aviation. Orville and Wilbur Wright mimicked the wing twisting of gliding birds by constructing a mechanism that warped the horizontal plane of an airplane’s wings at either side in opposite directions. They patented this mechanism and claimed in their patent that their rights extended to any system that varied the "lateral margins" in opposite directions.

The Wright-Martin Company was threatening to sue those considered to be infringers— effectively any airplane manufacturer, and engaged in protracted litigation. With the formal entry of the United States into World War I imminent, however, the US government sought a solution to the patent litigation, since some firms were reluctant to take contracts because of the threat of patent infringement suits.

Inordinately broad patents are especially problematic. For nearly a quarter of a century, for example, James Watt was able to prevent other engineers from constructing new types of steam engine, even under license from himself. At least one historian argues that the Industrial Revolution did not really take off until 1785, the year Watt’s patent expired.

During the period of Watt's patents the United Kingdom added about 750 horsepower of steam engines per year. In the thirty years following Watt's patents, additional horsepower was added at a rate of more than 4,000 per year. Moreover, the fuel efficiency of steam engines changed little during the period of Watt's patent; while between 1810 and 1835 it is estimated to have increased by a factor of five.

Many new improvements to the steam engine, such as those of William Bull, Richard Trevithick, and Arthur Woolf, became available by 1804: although developed earlier these innovations were kept idle until the Boulton and Watt patent expired.

Ironically, Watt's own efforts at developing a superior steam engine were hindered by the very same patent system he used to keep competitors at bay. When the patents expired, far from being driven out of business "Boulton and Watt for many years afterwards kept up their price and had increased orders."

Deadlock and patent pools
A significant and widespread example of private companies voluntarily relinquishing intellectual property are the so-called "patent-pools." A patent pool is an agreement, generally by a number of businesses in the same industry, to share patents. Although it is sometimes the case that when the pool is set up, a company that has few patents will make a payment to a company that has many patents, once the pool is operating, there is no payment between companies for patents. Any patent by any company in the pool is freely available to any other company in the pool. In some cases patent pools take the form of cross-licensing agreements in which firms agree to automatically cross-license all patents falling into certain categories.

In the United States, in a number of industries, processes of "collective invention" were implemented by means of patent pools. In some cases, patent pools were created after having experienced phases of slow innovation due to the existence of blocking patents. In the 1870s, producers of Bessemer steel decided to share information on design plants and performances through the Bessemer Association (a patent pool holding control of the essential patents in the production of Bessemer steel). The creation of this patent pool was stimulated by the unsatisfactory innovative performance of the industry under the "pure" patent system regime. In that phase, the control of essential patents by different firms had determined an almost indissoluble technological deadlock. Similar concerns over patent blockages led firms operating in the railway sector to adopt the same expedient of semi-automatic cross-licenses and knowledge sharing.

At the current time, patent pools are generally mandatory for participants in recognized standard setting organizations such as the International Telecommunications Union and American National Standards Institute. Large microprocessor corporations, such as IBM, Intel, Xerox and Hewlett-Packard engage in extensive cross licensing. Important computer technologies, including the MPEG2 movie standard and other elements of DVD technology are part of a patent pool.

Given the widespread willingness of large corporations to voluntarily relinquish patent protection through cross-licensing and patent pools, you might wonder why eliminating patents would even be necessary. Unfortunately, while patent pools eliminate the ill effects of patents within the pool – they leave the outsiders, well, outside. So while patent pools may give a strong indication that patents are not a terribly good idea, and that competition has many benefits – they do not unfortunately undo some of the most important harm of government enforced monopoly – that of preventing entry into an industry.

Ignoring patents
As a consequence of of the significant legal costs, both researchers and companies in component industries simply ignore patents. Companies and lawyers tell engineers not to read patents in starting their research, lest their knowledge of the patent disadvantage the company by making it a willful infringer. Patent lawyers commonly don’t conduct a search for prior patents before seeking their own protection in the Patent and Trademark Office (PTO). Nor do they conduct a search before launching their own product. Rather, they wait and see if any patent owner claims that the new product infringes their patent.

Even then, it is common in many industries characterized by a significant number of "patent trolls" to ignore the first cease-and-desist letter one receives from a patent owner, secure in the knowledge that patent litigation is expensive and uncertain and that some letter-writers will never follow up with a serious threat of suit. Finally, and most significantly, companies in component industries who in fact get sued for patent infringement never pull their product off the market pending the outcome of the suit. Rather, they decide to take their chances in court and hope that they can avoid infringement or invalidate the patent. Even if they embark upon a product redesign to avoid infringing the asserted patent, the redesign rarely replaces the original product unless and until the patent is held valid and infringed. This intentional ignorance of patent rights in the hands of others has led some to label major manufacturers in the IT industries "patent pirates."

Patents are supposed to confer information to scientists, but they can’t do that if scientists ignore patents. In this way, the patent system doesn’t achieve this disclosure goal.

Barriers to entry
It is often argued that, especially in the biotechnology and software industries, patents are a good thing for small firms. Without patents, small firms would lack any bargaining power and could not even try to challenge the larger incumbents. However, as Boldrin and Levine argue, dominant firms can prevent entry by holding patents on pretty much everything that is reasonably doable. For one small firm finding an empty niche in the patent forest, how many have been kept out by the fact that everything they wanted to use or produce was already patented but not licensed?

Second, because of the patent system, most small firms in these sectors are forced to set themselves up as one-idea companies, aiming only at being purchased by the big incumbent. In other words, the presence of a patent thicket creates an incentive not to compete with the monopolist, but to simply find something valuable to feed it, via a new patent, at the highest possible price, and then get out of the way. This may be quite advantageous to the few lucky entrepreneurs who manage to be bought out by the monopolist at a good price. However, it is not beneficial either to consumers, who keep living in a monopolized world paying high prices for bad products, or to the average potential entrepreneur who, plain and simple, cannot enter and compete.

According to a survey on why companies choose to patent, patents are not directed at innovation, but are primarily used as legal and bargaining tool. They are also instruments for preventing new firms from entering the industry. New firms, not having a portfolio of defensive patents, and not participating in the patent pool, find that they cannot legally compete with the existing oligopoly.

Freedom of Innovation
As Lawrence Lessig has pointed out in his book The Future of Ideas, innovation exploded in the Internet because it provided an innovation commons, a neutral platform upon which the widest range of creators could experiment. But this structural design is changing–both legally and technically.

Another example is the movie industry, where the copyright costs can be unexpected. A song in the opening credits requires the rights of the artist performing the song. But even incidental art and creative works (like posters on a wall in a dorm room or an advertisement on a truck driving by in the background) need a permission.

Today, "if any piece of artwork is recognizable by anybody . . . then you have to clear the rights of that and pay" to use the work. "[A]lmost every piece of artwork, any piece of furniture, or sculpture, has to be cleared before you can use it." The lawyers thus decide what’s allowed in the film. They decide what can be in the story.

The film Twelve Monkeys was stopped by a court twenty-eight days after its release because an artist claimed a chair in the movie resembled a sketch of a piece of furniture that he had designed. The movie Batman Forever was threatened because the Batmobile drove through an allegedly copyrighted courtyard and the original architect demanded money before the film could be released. In 1998, a judge stopped the release of The Devil’s Advocate for two days because a sculptor claimed his art was used in the background. These events teach the lawyers that they must control the filmmakers. They convince studios that creative control is ultimately a legal matter.

Freedom of speech
Intellectual property rights provide the legal basis for copyright owners' stifling the creation of fan fiction featuring characters from stories, movies, or TV shows. Some of these works are parodies that poke fun by portraying the characters or plots in a ridiculous light. By suppressing such works, as well as "sucks sites", the copyright laws hinder free expression and criticism. Copyright laws can also be used to breach anonymity by forcing the disclosure of people's identities based on mere allegations of infringement. Some copyright holders are even issuing cease and desist notices to people who merely link to allegedly infringing content, or who link to the copyright holder's website in ways that haven't been approved by that copyright owner. According to Stephan Kinsella, censorship was one of the main original purposes of copyright laws. The King James Version of the Holy Bible is still under copyright in the United Kingdom, largely for the purpose of protecting it from parody and other uses that might be deemed by the government to be disrespectful.

Orphan and banned works
Because copyright terms are so long, in many cases extending well over a century, much of twentieth-century culture is still under copyright and unavailable. Much of this, in other words, is lost culture. No one is reprinting the books, screening the films, or playing the songs. In fact, it may not even be known who holds the copyright. Companies have gone out of business. Records are incomplete or absent. A film, for example, might have one copyright over the sound track, another over the movie footage, and another over the script. These works - which are commercially unavailable and have no identifiable copyright holder - are called "orphan works". Not only are these works unavailable commercially, there is simply no way to find and contact the person who could agree to give permission to digitize the work or make it available in a new form.

Some works have a known owner, but they are still not interested re-issuing them. There are tens of thousands of books, movies and music pieces, which had a discrete success at the time, faded away from the top-seller list, and are now out of print and impossible to purchase. Many of these products are valuable artistic pieces that have a discrete but small demand, too small to be "profitable" for media giants. They may be an attractive product for small publishers or music companies, they may be valuable inputs for new artists and creators that could find in them inspiration for additional works, but they are not worth the effort or re-issuing for the likes of the Disney corporation. Worse, re-issuing a substantial portion of these titles would "crowd out" current products that the same media giants are heavily marketing. Monopolists maximize profits by restricting supply, elementary economics teaches us, and a simple way of restricting supply of artistic work is to make sure that not too many "equivalent" western movies, adventure novels, comic novels, symphonic pieces, and so on, are available for purchase at any given point in time.

In some cases, enforcement of copyright can lead to actual banning of books - like the attempted publishing of a "sequel" to J.D. Salinger's famous Catcher in the Rye. In another case, an online library focusing on scholarly works was closed down.



In 2012, Paul Heald did a random sampling of 2500 new books sold by Amazon (not used books, or books sold by Amazon associates - only books directly in Amazon's warehouses). The biggest number of books is from the decade 2000-2010. That is to be expected; they're more recent, more popular. The numbers drop off really quickly for books in the 1990s, 1980s... to 1930s - where books start falling in the public domain. Then the numbers go up and up. There's as many books that Amazon is selling brand new from the 1900s to 1910 as from the 2000s to 2010. There's twice as many books from the 1850s being sold on Amazon as the 1950s.

Permanent loss of information
Some media deteriorates or is destroyed because copyrights prevent it from being copied onto other media and distributed. There are substantial costs involved in preserving information in its original medium until the copyright expires, and the devices used to retrieve the information may no longer exist by that time. An example would be wax s from the early 20th century.

In another example, the preservation of deteriorating piano rolls (made out of paper, used in the player piano, an old automated musical instrument popular in the US in the early 20th century) is hampered by copyright laws.

Product Differentiation
The existence of patents also induces wasteful expenditure of resources by competitors trying to "invent around the patent," i.e., to develop competing products that are sufficiently differentiated so as not to infringe on an existing patent. There are incentives for a firm to duplicate the prevailing best technology patented by another firm in a way that does not infringe on patents. More generally, there are incentives for a firm to develop a technology even if it is worse than the current best one, if it is better than the one it has and the best is blocked by patents.

Thus, although these activities increase the level of research-and-development spending, from the social point of view they are not necessarily an efficient use of available resources.

Worse still, patent owners also have incentives to invent around their own patents to preclude potential competition. To the extent that the patent system itself induces these activities, resources devoted to them (as well as the associated legal expenses) are essentially wasted from the social point of view, and should be regarded as another cost of the system. For example, to protect its monopoly position in the market for plain-paper copiers, Xerox patented every conceivable aspect of its technology. IBM had spent millions to ‘invent around’ Xerox’s major patents—with 25 percent of the budget going for patent counsel, not R&D.

Availability of drugs
Although it is sometimes argued that the "welfare triangle" (the net loss to society) from this policy is not large, in the case of innovation this is not always true. The example of AIDS drugs both illustrates the theory and the potential losses. AIDS drugs are relatively inexpensive to produce. They are so sufficiently inexpensive to produce that the benefits to Africa in lives saved exceed the costs of producing the drugs by orders of magnitude. But the large pharmaceutical companies charge such a large premium over the cost of producing the drugs – to reap profits from sales in Western countries where those drugs are affordable – that African nations and individuals cannot afford them. Through IP and international "free" trade agreements, they also prevent potential competitors (read: imitators) to enter the African or Latin American markets for such drugs.

Distortion of research
Patents can be obtained only for "practical" applications of ideas, but not for more abstract or theoretical ideas. This skews resources away from theoretical R&D. It is not clear that society is better off with relatively more practical invention and relatively less theoretical research and development. Resources are wasted and development slowed down because the workers are engaging not in the types of innovations they need for their product development but rather in things that satisfy the patent office.

Defensive patents
Venture capitalists insist on a strong patent portfolio when evaluating whether to invest in a company. But this is because, in part, patent portfolios are necessary to defend against other companies' portfolios. If there were no patent system, one would not need to defensively spend money building up a mountain of patents to use in counterclaims or cross-licensing negotiations.

Orchestral music
Any symphony orchestra that wants to play a piece of music has to obtain the sheet music, the actual physical pieces of paper to be placed on the music stands for all the members of the orchestra so that they can play the music, and of course there’s a score for the conductor who has all the parts. For any given piece of music, there are essentially two possibilities - the piece is available for purchase or it’s only available as a rental.

If an orchestra can buy the music, it will own it and can keep it in its library and perform it as frequently as it would like to without having to re-buy the music every time. The price varies but for a 10 to 15 minute piece the price might be $150, for a longer more substantial piece, an hour-long symphony maybe, the price would be up to $300 or so.

In addition, there’s also a question of all the performance markings that go into playing any piece of music. Before the orchestra musicians get the parts, the conductor and the librarian and the principle players have worked to create a series of markings that is transferred into all the parts - for example strings bowings. That is hours and hours and hours of preparation. During the rehearsal process more markings are put in - the conductor might say play that softer, play that louder, etc. The markings stay in the parts for the pieces that the orchestra was able to purchase. And it’s much easier and less time consuming to revisit them the next time the piece is played.

Some pieces can be only rented by the publisher. The average price to rent a symphony is around $600-700 to rent it to perform the piece one time. The orchestras are charged for each concert, although usually the second and third performances are at a reduced rate. And then there is the same process to create all the markings, which have to be erased afterwards and the sheets returned mark-clean to the publisher. If the orchestra wants to play the same piece again in a few years, the orchestra has to pay again - depending on the number of performances - and go through all the bowing and marking process. So it is much more advantageous to be able to purchase music and keep it in the library and just reuse it at will. That’s the general procedure.

There's also a licensing fee. But when something is rental only and under copyright, on top of the rent, a licensing fee has to be paid to the publisher every time the piece should be played. And that even goes for pieces purchased before that law came out.

The larger organizations -- like the New York Philharmonic, the Boston Symphony, or Chicago Symphony -- have very large budgets and although they’re not happy about it, they can afford to rent whatever pieces they need to rent. They also pay a blanket licensing fee every year that covers all their copyrighted music.

The smaller orchestras - professional orchestras in smaller towns or youth orchestras - also have a budget for renting and/or purchasing music but it’s obviously much, much smaller. In effect the law, because of the costs involved, prevents many, many smaller orchestras and educational institutions from physically performing these pieces. If they don’t have more they can’t play the piece. So they’re simply not playing them.

The law is supposed to protect the heirs of the composers. With the large orchestras, the heirs of these composers are getting a very small royalty check from the couple of orchestras that play these pieces. But by and large, the pieces are simply not being played.

Persecution of opposition groups
In Russia, where software piracy is rampant, security services have carried out dozens of raids against outspoken advocacy groups or opposition newspapers in recent years. Several investigations had been mishandled; it is also claimed that raids are rarely if ever carried out against advocacy groups or news organizations that back the government.

Car repairs
As cars become vastly more complicated than models made just a few years ago, mechanics are often turning down jobs and referring customers to auto dealer shops. Many new vehicles come equipped with multiple computers controlling everything from the brakes to steering wheel, and automakers hold the key to diagnosing a vehicle's problem. In many instances, replacing a part requires reprogramming the computers a difficult task without the software codes or diagrams of the vehicle's electrical wires.

Independent mechanics often do not have the thousands of dollars to purchase the online manuals and specialized tools needed to fix the computer-controlled machines. This has left customers with fewer options for repair work.

Automakers say they spend millions in research and development and aren't willing to give away their intellectual property. They say the auto parts and repair industry wants to get patented information to make its own parts and sell them for less.

Their opponents say automakers are trying to monopolize the parts and repair industry by only sharing crucial tools and data with their dealership shops.

Dealership shops may be reaping profits from the technological advancements. A study released in March, 2009, by the Automotive Aftermarket Industry Association found vehicle repairs cost an average of 34 percent more at new car dealerships than at independent repair shops, resulting in $11.7 billion in additional costs for consumers annually.

Studies
It seems reasonable to assume that patents must have some effect on technological innovation, but the interesting question is the practical magnitude of this effect. The results of the few studies that have attempted to detect it empirically do not favor the pro-patents position.


 * Edwin Mansfield directed two important studies on this topic in the 1980s. The first studied thirty-one patented innovations in four industries: chemicals, pharmaceuticals, electronics, and machinery. One purpose of the study was to answer a simple question: what proportion of innovations would be delayed, or not introduced at all, if they could not be patented? According to the firms, about one-half of the patented innovations in the sample would not have been introduced without patent protection. The bulk of these innovations occurred in the drug industry. Excluding drug innovations, the lack of patent protection would have affected less than one-fourth of the patented innovations in our sample.


 * The results of the second study were even more negative: According to detailed data obtained from a random sample of 100 firms from 12 manufacturing industries, patent protection was judged to be essential for the development or introduction of one-third or more of the inventions during 1981–83 in only 2 industries — pharmaceuticals and chemicals. On the other hand, in 7 industries (electrical equipment, office equipment, motor vehicles, instruments, primary metals, rubber, and textiles), patent protection was estimated to be essential for the development and introduction of less than 10 percent of their inventions. Indeed, in office equipment, motor vehicles, rubber, and textiles, the firms were unanimous in reporting that patent protection was not essential for the development or introduction of any of their inventions during this period.


 * A more recent paper approached this problem from a slightly different angle, but also failed to support the pro-patents position. If patents do indeed stimulate innovation, then presumably stronger patent protection should induce a higher rate of innovation. The authors addressed the question "Do Stronger Patents Induce More Innovation?" by studying the impact of a significant Japanese patent law reform implemented in 1988. Their main finding was that "the average response in terms of additional R&D effort and innovative output was quite modest." An econometric analysis using Japanese and U.S. patent data on 307 Japanese firms confirmed that the magnitude of the response was quite small.


 * A study published in The Columbia Science and Technology Law Review suggests that patents may harm new technology, economic activity, and societal wealth. The study was a multi-user interactive simulation of patent and non-patent systems.


 * In an empirical study of the effects of patent law on innovation based on data from two 19th century world fairs, strong evidence was found that patent systems influenced the distribution of innovative activity across industries, but no evidence that patent laws increased levels of innovative activity. Countries without patent laws brought many important innovations to the fairs. Mid-nineteenth century Switzerland, for example, had the second highest number of exhibits per capita among all countries that visited the Crystal Palace Exhibition. Moreover, exhibits from countries without patent laws received disproportionate shares of medals for outstanding innovations. These countries shared a strong focus on innovations in scientific instruments and food processing (where secrecy was particularly effective at protecting innovations). On the other hand, patenting was essential to protect and motivate innovations in machinery, especially for large-scale manufacturing. (However, scholars have argued that both Switzerland and the Netherlands benefited greatly from their unfettered ability to use and improve upon inventions patented in other countries. )


 * An extensive review of many studies from Dixon and Greenhalgh (2002) speaks about a "limited evidence on IP as an incentive for innovation" and quotes Penrose (1951): "If national patent laws did not exist, it would be difficult to make a conclusive case for introducing them; but the fact that they do exist shifts the burden of proof and it is equally difficult to make a really conclusive case for abolishing them."


 * In a 1958 review of the patent system, Fritz Machlup concluded, that "No economist, on the basis of present knowledge, could possibly state with certainty that the patent system, as it now operates, confers a net benefit or a net loss upon society.


 * In the September, 2011 "The Uneasy Case for Software Copyrights Revisited", Pamela Samuelson maintains that the economic case for copyright in the software industry was stronger up to the 1990s, but became "uneasier" afterwards. The author does not suggest that copyright protection for computer programs should be repealed concluding that, "Copyright protection has become so deeply entrenched in software protection law and in software industry’s expectations that it will stay for decades to come, regardless of whether it really is (or is not) economically necessary.


 * An August, 2003, study "An Empirical Look at Software Patents" explored the economic effects of granting software patents in the U.S. during the 1990s. It found its results difficult to reconcile with the traditional incentive theory—that granting more patents will increase R&D investments. Instead, the study concludes, the result might well be less innovation. The shift in legal standards for patenting software was a potent incentive to increase expenditure in patents. This increase in the number of patents in the U.S. economy was not accompanied or followed by an equally visible increase in any economic measure of effective innovation and productivity. Software patents may have complemented R&D during the early 80s – when patenting standards were still relatively high – but they substituted for R&D during the 1990s. Regulatory changes increased the amount of patenting, but they were also associated with lower R&D. The naïve arguments that more patents, relaxed standards, or lower patenting costs lead to more R&D could be rejected.


 * An August, 2005 study for the Library of Congress focused on the "reissue" of popular audio recordings commercially released in the United States between 1890 and 1964. The analysis suggests that a significant portion of historic recordings is not easily accessible to scholars, students, and the general public for noncommercial purposes. Besides technical reasons, copyright law allows only rights holders to make these recordings accessible in current technologies, yet the rights holders appear to have few real-world commercial incentives to reissue many of their most significant recordings. The law has severely reduced the possibility of such recordings entering into the public domain, at least until 2067. The study indicates that there is an active and hardy network of foreign and small domestic companies, associations, and individuals willing to make historic recordings available; indeed, some do this in spite of laws that force them underground or overseas.


 * A 2004 empirical study found that file sharing had no statistically significant effect on purchases of the average album in its sample. Noting that the movies, software, and video games industries have continued to grow since the advent of file sharing, it concludes that file sharing can explain only a tiny fraction of the decline in sales in the music industry. Alternative factors include poor macroeconomic conditions, a reduction in the number of album releases, growing competition from other forms of entertainment such as video games and DVDs, a reduction in music variety stemming from the large consolidation in radio along with the rise of independent promoter fees to gain airplay, and possibly a consumer backlash against record industry tactics.


 * A 2008 study by Paul Heald of bestsellers from 1913 to 1932 showed that public domain books were more available than the copyrighted books (were in print at a higher rate and had more editions available by more different publishers).


 * Commissioned by the Dutch government, a recently published report concludes that file-sharing has a positive effect on the economy, both on the long and short term. The report estimates the positive effect on the Dutch economy to be around 100 million euros a year. While it is recognized that the entertainment industry suffers some losses, these are not said to outweigh the positive effects of file-sharing. The researchers further found that people who download music and movies are not buying less than people who don’t. In fact, downloaders are reported to be more frequent visitors of concerts, and game downloaders actually bought more games than those who didn’t. In the music industry, lesser-know bands profit most from file-sharing, the researchers report.


 * In November, 2011, the Swiss government has conducted a study about the impact downloading has on society. It concluded the law allowing downloading copyrighted material for personal use doesn't have to change. Noting that the Internet has indeed changed the market, the income spent for entertainment purposes did not change and is used more for visiting concerts and cinemas and merchandising. The cultural impact is therefore not negative.

Links

 * Copy Catfight by Jesse Walker, March 2000
 * Drew Curtis: How I beat a patent troll (video), April 2012
 * In wake of Apple v. Motorola, Judge Posner speaks: 'it's not clear that we really need patents in most industries' by Evan Rodgers, July 2012
 * How Newegg crushed the “shopping cart” patent and saved online retail by Joe Mullin, January 2013
 * The Patent Bubble and Its End by Jeffrey Tucker, February 2013
 * Patent Trolls: Predatory Litigation and the Smothering of Innovation by William J. Watkins Jr., 2014, ISBN 978-1-59813-170-3