GREAT post on patents and innovation posted on Mises blog in the comments:

I just finished reading your article A Book that Changes Everything.... Great stuff! I wanted to send along my thoughts on the subject.

First, I should confess that I work for a company that has received more patents than any other - for every single year - the last 15 years. Second confession: I co-own several of those IP patents (well, the company is the real owner - I'm just the "inventor" on some of them. I'm a software engineer.).

I'm going to avoid mentioning the company I work for (more corporate regulations), but given the clues you can figure it out fairly easily.

We are slightly different than some of the corporations you mention: "It is impossible to develop software without running into IP problems, and the largest players are living off IP and not innovation"

We do make great money off our patents (I'll explain what I think is the real benefit though). However, we do innovate, and we make the vast majority of our revenue off of our products - because our product is superior. (Ok, I may be slight biased - but our customers tell us this too)

Anyway, I believe that the real benefit of patents for the company I work for, and other large software firms, is that we trade them - sort of like kids with baseball cards. That is, we'll allow firms to use certain patents in exchange for the rights to some of theirs. As you can probably figure out, this is not a real option for start ups that do not have the IP portfolio to make this attractive.

We have a huge team of IP lawyers, a bonus structure that makes it attractive to try to patent any possible new inventions, and a management that uses your personal patent portfolio as a factor in determining who to promote. We've been told that they'll patent anything new we come up with - even if it is unrelated to the business (i.e. I've seen them patent an exercise device).

We'll often write papers on items that the business decides not to patent - just to show prior discovery should we be challenged by other corporations. We also get a bonus for this - just not as much.

From an employee standpoint, this is attractive. Hey - it's a lot of extra money to us, and we are helping out our company. As an employee who happens to be a libertarian, I honestly have no issue with my company taking advantage of the silly IP laws.

That brings me back to the main issue at hand though: should we have IP laws?

Speaking from my own experience, corporations (such as the one I work for) spend a lot of money to innovate. However, I would "press that button" and get rid of IP law immediately, given the chance. I agree completely with the arguements made in the article - as such, I'll just bring up a few other issues:

I think IP law is incredibly damaging to innovation and competition. In the case of software patents, moreso in that they take resources (primarily money which gets redirected to legal teams) from firms who are forced to research existing patens, and also defend themselves against IP lawsuits.

Many software patents are particularly silly. Many of these are issued for algorithms - the vast majority of the time, these algorithms are only available outside the company via patent! That is, when they are shipped externally, it is in a form that is not readable (object code). Sure - this can be reverse engineered. But for a particularly complex program or operating system, this in itself would be a colossal endeavor. Yet, a patent is issued for it - and the patent describes exactly what the algorithm does!

Another firm could look at the patent and use the invention. In most cases, it would be impossible to tell that they've "stolen" anything. Here they are counterproductive.

I should also mention the obvious - the corporation which holds the patent already has a huge advantage! They will ship a product with these innovations before any other corporation can ship its' product. Quite frankly it will generally be a significant period of time before another product can be shipped which contains these innovations - even if the innovation was immediately obvious and known. This will not generally be the case.

Then you have the patents for user interface - these are just silly. I've seen patents issued (granted, this was a long time ago) for using a particular color on a "dummy" terminal.

Anyway, I hope I do not sound like a hypocrit (because I hold IP patents). As I said, it is a part of my job. I also cannot fault my company for taking advantage of whatever silly laws are created. I simply view this as another case of the state interfering with the market, and the market adjusting to exploit the foolishness of the laws.

Well Anonymous, your company could only be IBM. In fact, there have been numerous studies (never acknowledged here, call it the stick your head in the sand approach to objectivity) showing that patents have benefited some countries and some industries. Though I do not have time to post a complete list, the best information I have found yet is this one:

The Plant Variety Protection Act of 1970 provided patent protection for sexually reproducing plants. In the 1960s, about 150 new plant varieties were developed in the U.S. In the 1970's, after providing patent protection, over 3000 new plant varieties were developed.

Between the 1960s and the 1970s huge leaps were made in genetic engineering, both through traditional means and through recombinant DNA in the mid to late 70s. While field tests were not done on recombinant organisms until the 1980s, it is possible that much of the patenting in the late 70s was due to technological advances. Furthermore 3000 new plant varieties does not equal 3000 new useful plant varieties. Before the Plant Variety Protection Act the only motivation for developing new plant varities was practical - make plants heartier, adapt them to a broader range of environments, make them more appealing to consumers, etc. Following the act, there arose a new and powerful motivation to create plant varieties - in order to secure patents, regardless of practical application. This would naturally lead to the creation of many novelty varieties with limited commercial application, as well as the patenting of completely non-interesting or marginally diverging varieties for the sake of potential legal leverage. In all likelihood the Act had the practical result of delaying by 10 years the widespread adoption of useful varieties, the majority of which would have already been highly profitable.

Justen:

Between the 1960s and the 1970s huge leaps were made in genetic engineering, both through traditional means and through recombinant DNA in the mid to late 70s.

The first successful recombinant DNA organism was created in 1973. Regardless of how you spin the story, creating 3000 plants from one experiment beginning in 1973 is nearly an impossibility since most labs were still learning how to repeat what the first lab did for most of the next five or six years. However, an even more important fact is that plants created by genetic engineering were not recognized as patentable matter until 1980 after the U.S. Supreme Court ruled that they could be patented in Diamond v. Chakrabarty.

While field tests were not done on recombinant organisms until the 1980s, it is possible that much of the patenting in the late 70s was due to technological advances.

Pure, unadulterated speculation supported by...NOTHING. Provide evidence. I did, in addition to the fact that I pointed out that patenting of organisms created by using recombinant DNA were not considered patentable matter until 1980. Oops...

Furthermore 3000 new plant varieties does not equal 3000 new useful plant varieties. Before the Plant Variety Protection Act the only motivation for developing new plant varities was practical - make plants heartier, adapt them to a broader range of environments, make them more appealing to consumers, etc. Following the act, there arose a new and powerful motivation to create plant varieties - in order to secure patents, regardless of practical application. This would naturally lead to the creation of many novelty varieties with limited commercial application, as well as the patenting of completely non-interesting or marginally diverging varieties for the sake of potential legal leverage.

Do you wear an aluminum foil suit and believe you have been kidnapped by space aliens? Just curious. You seem terribly paranoid.

People experiment all the time. Think about Edison and his 1000 failed attempts (which is apocryphal) at creating a light bulb. Edison performed every one of those failed experiments not knowing which would be successful. By your logic, he should have skipped experimenting because the experiments were a waste of time and money. There is no logic there.

If someone creates a new plant variety intentionally through the use of selective breeding, then they have a right to patent the variety by the Plant Variety Protection Act of 1980. If they patent a plant, then they have effectively stated that the plant is worth, to them, at least the amount of money it takes to prepare the patent, file the patent, and pay the maintenance fees for the length of time they elect to keep the patent in force. Ergo, to the individual filing the patent, the plant already has at least the value of the patent.

As for practicality, the vast majority of patents filed under the Plant Variety Protection Act of 1980 are for flowers. Of course, as you rightfully suggested, the intent is to appeal to flower lovers everywhere. I get flower catalogs all the time. I can tell you that the array and variety of flowers available is stunning. Flower catalogs today are like magazines compared to those of the 1960's, which were thin, wimpy things advertising one or two of these, or one or two of those.

Furthermore, patents are not only a non-issue in the plant world, they are a badge of honor. Flower producers pride themselves on creating new, unique varieties, which they get to name, and vie for novel characteristics that will give them a cachet in their industry. The plant variety patent itself may not make them much money, but the advertising value is tremendous.

As for using plants patented under the Plant Variety Protection Act of 1980 for leverage, I demand evidence that this happens to any extent. Unsupported assertions are meaningless.

In all likelihood the Act had the practical result of delaying by 10 years the widespread adoption of useful varieties, the majority of which would have already been highly profitable.

rolfmao...You know absolutely nothing about plants, do you? You live in an apartment somewhere in the city, or you live with your parents or grandparents. Am I right?

The vast majority of plants are not "highly profitable." At least, not those patented under the Plant Variety Protection Act of 1980. The plant world is highly competitive, particularly the flower world, which is where most of these plant variety patents are located. Have you ever examined the business structure of the flower world, the investments required, the nature of the harvesting and selling, the risks involved, and profit margins? Have you ever priced flowers? Have you shopped around? People are falling all over themselves to sell flowers, and pricing is highly competitive.

The main definition of "usefulness" in plant varieties is whether people find the flower distinctive and attractive. It is quite rare for any one variety to have "widespread adoption" just because there are so many competing varieties. Consider this: If you have 100 species of hydrangea to choose from, which one is likely to be widespread? How about none? In fact, horticulturists (as opposed to someone who buys and plants "flowers") are likely to disdain the "widespread" varieties in favor or rare or unusual varieties, and when a particular variety becomes "widespread," they may well move on to something different or less "widespread."

However, I am open minded. Show me evidence of your unsupported assertions and I might well change my mind.

Lonnie, Lonnie, Lonnie. Why waste all our time beating this dead horse again?

"creating 3000 plants from one experiment beginning in 1973 is nearly an impossibility since most labs were still learning how to repeat what the first lab did for most of the next five or six years."

a) missing the point, b) a brilliant example of how the first-mover advantage is good enough without patent laws. It took the competitors several whole years of playing catch-up in this instance!

"Pure, unadulterated speculation supported by...NOTHING."

Yes, I've noticed that that seems to be your specialty, Lonnie.

""Furthermore 3000 new plant varieties does not equal 3000 new useful plant varieties. Before the Plant Variety Protection Act the only motivation for developing new plant varities was practical - make plants heartier, adapt them to a broader range of environments, make them more appealing to consumers, etc. Following the act, there arose a new and powerful motivation to create plant varieties - in order to secure patents, regardless of practical application. This would naturally lead to the creation of many novelty varieties with limited commercial application, as well as the patenting of completely non-interesting or marginally diverging varieties for the sake of potential legal leverage."

Do you wear an aluminum foil suit and believe you have been kidnapped by space aliens? Just curious. You seem terribly paranoid."

Fascinating. How utterly fascinating. When confronted by a powerful and decisive argument demolishing his position, most people would make a graceful retreat. Lonnie responds instead with ad-hominem attacks.

Tsk, tsk!

"Ergo, to the individual filing the patent, the plant already has at least the value of the patent."

No, the patent has at least the value of the patent. And it may derive this value from its potential use as legal leverage, as Justen pointed out, rather than from the value of the plant.

"Flower catalogs today are like magazines compared to those of the 1960's, which were thin, wimpy things advertising one or two of these, or one or two of those."

There is no proof that the difference is the result of patents, rather than scientific advances, prosperity increases (so people had more disposable income to spend on flowers, which in turn enriched the flower industry and enabled it to improve and diversify its product), or any of several other likely causes.

"Furthermore, patents are not only a non-issue in the plant world, they are a badge of honor. Flower producers pride themselves on creating new, unique varieties, which they get to name, and vie for novel characteristics that will give them a cachet in their industry. The plant variety patent itself may not make them much money, but the advertising value is tremendous."

If true, then that patent is useless for the purported aim of creating exclusivity to reward creation. A trademark would suffice to do what is described above.

"As for using plants patented under the Plant Variety Protection Act of 1980 for leverage, I demand evidence that this happens to any extent. Unsupported assertions are meaningless."

You're one to talk, Lonnie. But do note that there doesn't have to have been a single actual patent lawsuit using one of these patents; the mere potential for such a lawsuit might have had the effect desired, with or without a verbal threat or other similarly potentially-undocumented act of exerting the leverage.

The patent could even have provided all the protection of a safety blanket. In this case, the patents were really ripoffs, with the PTO and a bunch of patent attorneys the hucksters and plant breeders the marks. In which case see above: useless patents don't have any reason to exist.

""In all likelihood the Act had the practical result of delaying by 10 years the widespread adoption of useful varieties, the majority of which would have already been highly profitable."

rolfmao...You know absolutely nothing about plants, do you? You live in an apartment somewhere in the city, or you live with your parents or grandparents. Am I right?"

Ah, the patented and trademarked double-ad-hominem twist with a right hook from Lonnie once again. I think maybe this move is his limit break or something.

"The vast majority of plants are not "highly profitable." At least, not those patented under the Plant Variety Protection Act of 1980. The plant world is highly competitive, particularly the flower world, which is where most of these plant variety patents are located."

More evidence that these particular patents are worthless.

You're caught on the horns of a dilemma, Lonnie: each separate patent is either completely worthless or actively harmful to society, one or the other.

"Have you ever examined the business structure of the flower world, the investments required, the nature of the harvesting and selling, the risks involved, and profit margins?"

Have you?

"However, I am open minded. Show me evidence of your unsupported assertions and I might well change my mind."

You first, Lonnie.

Beeswax:

Your little straw man arguments are interesting, but you completely missed the point. New plant species were being created at a negligible pace. After the plant variety patent act, the number of new plants exploded. The plant variety patent act did not cover genetically modified plants. Ergo, patent protection appears to have caused the creation of more new plants. Prove otherwise.

Lonnie writes:

"Beeswax:

[insults deleted]. New plant species were being created at a negligible pace. After the plant variety patent act, the number of new plants exploded. The plant variety patent act did not cover genetically modified plants. Ergo, patent protection appears to have caused the creation of more new plants. Prove otherwise."

None of the nasty things that you have said or implied about me are at all true.

You have too many errors here for me to count them all, but among the more serious ones:

* Assuming that new plant species were being created at a negligible pace. If your primary indicator of new species is new patents filed, of course there's a big jump in your indicator when they became patentable.

* Assuming that the number of new plant species says something about the rate of innovation. Many of the variations might have been derived solely to get a patent that might be used as a weapon, or to bulk up a patent portfolio so someone could say they had some impressively-large number of patents, or to get around someone else's patent.

* Assuming that correlation implies causation.

* Assuming that the burden of proof is on me, rather than on you. You are the one who wishes to restrict others' liberty. That means the burden of proof is on you.

Beeswax, my personal stalker:

Obviously a measure of patents filed on plants meant nothing before 1970 for sexually propagating plants because protection for those plants did not exist before 1970. Nice try!

There were 150 new sexually reproducing plants created in the 1960's.

The Plant Variety Protection Act was passed in 1970.

There were 3000 new sexually reproducing plants created in the 1970's.

There have been multiple studies linking the Plant Variety Protection Act to the increase in new sexually reproducing plants. Not correlation, causation.

Interestingly enough, those same studies have found that obtaining protection under the act most frequently served as a marketing tool, and very few if any (I was unable to find any) lawsuits have been filed for plants protected under the act. I also found a study on corn that indicated that the price of corn did not change after the act, and in fact went down.

I find it interesting that I keep providing links and facts, and yet everything I say is a correlation, per you.

I have proof...do you?

Lonnie, our pet troll, writes:

"Beeswax, my [insult deleted]"

No. None of the nasty things that you have said or implied about me are at all true.

"There were 150 new sexually reproducing plants created in the 1960's.

The Plant Variety Protection Act was passed in 1970.

There were 3000 new sexually reproducing plants created in the 1970's."

And this may well have been the natural growth curve for this industry, independently of patents. Or even have fallen below it, because patents stifled innovation.

Or it may represent non-valuable "innovation" of numerous plant varieties purely to patent them, creating "instant assets" that could be valued into a company's bottom line.

"There have been multiple studies linking the Plant Variety Protection Act to the increase in new sexually reproducing plants."

Correlation does not prove causation.

"Interestingly enough, those same studies have found that obtaining protection under the act most frequently served as a marketing tool"

So could taking an ad out in the paper. If the patents were not used to actually "protect" anything, then a non-freedoms-destroying method would have been far preferable.

"and very few if any (I was unable to find any) lawsuits have been filed for plants protected under the act."

Reinforces what I just said above.

"I also found a study on corn that indicated that the price of corn did not change after the act, and in fact went down."

No doubt because generic corn remained widely available (pre-existing varieties being prior art, so unpatentable).

"I have proof"

You keep saying that, Lonnie. I am still waiting for you to provide it.

Beeswax:

The PVPA of 1970 was essentially a grant of monopoly for new plant varieties propagated sexually. A study done for cotton notes in its conclusion (there are caveats regarding the conclusion, by the way, which you are free to review for yourself):

Rather than the "sound and fury, signifying nothing" conclusion for plant variety protection drawn by Janis and Kesan (2002), our analysis of cotton varieties may be yielding a different Shakespeare quotation: "We must take the current when it serves, or lose our venture." In this paper we have found that the PVP Act was the current that served the cotton industry well, particularly when other forms of IP protection were unavailable or unused. Analysis of the relationship between PVP and cotton yields requires consideration of trends in yields (and trend shifts), changes in total area planted and area planted to PVP varieties, numbers of protected varieties planted, and teh interation of PVP area planted with trend. There has been an increase in the number of new varieties released annually since the PVP Act, and econometric results indicate a positive effect on yields. We conclude that at least for cotton, the PVP Act has served to encourage a greater flow of innovation and the development of more productive cotton varieties.

http://www.agbioforum.org/v8n23/v8n23a06-oehmke.pdf

So, according to the authors of this paper, the PVP Act helped increase new cotton varieties, providing positive econometric results, which therefore increased the pie for all those involved in the cotton industry. Well, hallelujah!

Beeswax:

Oh my, here is a very current example. China was having problems getting plant breeders to develop new plant varieties, so they established monopoly rights for new species and guess what? THEY GOT MANY MORE NEW SPECIES! Who would have guessed?

http://www.chinadaily.com.cn/english/doc/2005-01/24/content_411537.htm

Incidentally, you are stalking me and what I said is absolutely true.

to le holder:

bastiat's window. the unquantifiable costs of npva are spread across all members of society, even those who give a rat's about hydrangeas. the benefits you cite (disputed by others; i don't know) are to the privileged recipients of the ip subsidization.

newson:

Disputed by who? The only dispute I have seen is from Boldrin & Levine, who use some kind of factor that neglects several important details, such as the effects of crop disease.

However, all this is irrelevant. If the costs are unquantifiable, then there is no issue, is there? When you can quantify costs, then there might be an issue. As an aside, there is an interesting study of the effects of the PVPA on corn. The study found that there was no effect of the PVPA on the price of corn. How did they determine this? They compared the prices of corn before and after the PVPA and found that the prices did not change in comparison to historical values.

So, I agree with your unquantifiable. It is hard to quantify lack of change.

On the other hand, when the Chinese implemented a plant protection act of their own in 2004 because they were concerned with the lack of investment in the development of new plants, they were concerned about the cost of not having such a benefit. The initial reports from China are that there has been a huge increase in beneficial plants after passing of their protection act in 2004. I guess the Chinese feel they can quantify the benefit.

to le holder:

again, i refer you to bastiat's fallacy of the broken window.

the costs of drafting ip legislation, policing it, the cost of compliance born by business (passed on to consumers), and the cost of the monopoly rents paid by virtue of patents and copyright, all these must be taken into account. then you must try and imagine where all that capital might have been invested in the absence of ip.

good luck in trying to arrive at a number.

merely pointing at an example of a sector flourishing after being included in the ip umbrella is no proof that the policy is beneficial to the economy overall.

The only flourishing that was documented in the China Today article was a flourishing of patent applications. That's a common and not at all surprising effect of allowing patenting.

David:

The goal was increasing the number of new plants. Prior to extending protection to plants, the number of new plants developed in China was considered undesirable by the Chinese government. If the number of new patent applications for plants is flourishing, then obviously they achieved their goal. People cannot file an application without an underlying development.

I see our resident troll has been busy again this week.

First he quotes yet another questionable industry-sponsored study which was likely biased. To this I reply that I have found evidence that others think as I do regarding companies having lots of reasons to file for patents without innovation being involved at all, and ways that patents can make them money that don't involve innovation, litigation, or even any anticompetitive use at all:

http://www.techdirt.com/articles/20090129/0331363567.shtml

mentions the likely use of patents, in various places and times, by startups "as a bogus currency to increase their valuation in talking to VCs". More generally, the creation of a whole new class of "property rights" will result in a gold rush and a land-grab purely because the resulting grants can be declared as assets to the shareholders or whomever. So of course as soon as someone made plant varieties patentable, there was a gold rush for plant variety patents -- the more the better -- without there being any implication from this that the patents actually spurred any innovation, or did much of anything else except maybe hoodwink some shareholders in various enterprises into thinking those enterprises had actually suddenly gained value.

"Oh my, here is a very current example. China was having problems getting plant breeders to develop new plant varieties, so they established monopoly rights for new species and guess what? THEY GOT MANY MORE NEW SPECIES! Who would have guessed?"

It's China. They probably also threatened to beat people with a stick or throw them in jail if they didn't do what the government wanted. :P

Again, though, see above re: land grabs. There may be little or no real innovation here, just an attempt to stake out as big a territory as possible in the new "property rights" created for reasons entirely unconnected with innovation. There need not even be a rational motive such as to convince shareholders to buy more shares; humans are territorial by nature, so if you hand a bunch of them a new (even if in many senses fictitious) territory to carve up there will be a land grab.

And before long, litigation as territory-marking pissing-contest.

Does this "promote the progress of science and the useful arts" though? I don't think so.

"Incidentally, you are [false accusation deleted] and what I said is absolutely true."

Bollocks, and bollocks. None of the nasty things that you have said or implied about me are at all true.

"If the costs are unquantifiable, then there is no issue, is there? When you can quantify costs, then there might be an issue."

This is the sort of thinking that leads oil companies and the like to stick their heads in the sand regarding global warming and, worse, to actively oppose anyone else doing any research on the topic. Because if someone manages to quantify the costs of all those CO2 emissions believably, then there "might be an issue".

"They compared the prices of corn before and after the PVPA and found that the prices did not change in comparison to historical values."

That means the patents failed to have useful effect. They only "incentivise creation" if the patent-holder can expect to get extra money from innovating *with* a patent, but cannot expect to *without* the patent, therefore if the patent-holder can expect to charge monopoly prices *with* the patent. The patent-holders in this case demonstrably did not charge monopoly prices, presumably because they had plenty of competitors with their own, separately patented varieties.

If they made any extra money, it was not with monopoly prices, but instead by the kinds of capitalization-counting tricks alluded to earlier. If they made any new plant varieties, it was not because they could charge more for them and people would buy, but purely to inflate the size of their patent portfolio for such non-innovative reasons. And then they won't have put any effort into breeding genuinely innovative, new and distinct varieties; just into making some that are no better or worse than typical but *different* enough to be individually and separately patentable. It's like buying up "land" in Second Life without necessarily doing anything useful with it.

The irony is that in the one specific case of plant varieties, diversity has some value in and of itself because it increases disease resistance of the total crop and makes it far less likely that a single pathogen will wipe out a large fraction of total production in a country. But this goal could be accomplished easily without freedom-destroying and innovation-chilling patents simply by a government grant of money to agricultural research departments at universities geared towards developing more, and maybe specifically disease-resistant, varieties.

"So, I agree with your unquantifiable. It is hard to quantify lack of change."

There was change, though, if not specifically to the price of corn. There was a reduction in everyone else's rights in their property, including what they could do with a kernel of store-bought corn they'd paid for. Eating it remained okay, but they might now infringe some ridiculous "intellectual property" by planting the damn thing in their back yard instead. Hardly a virtuous situation.

See also Newson's and David's comments, especially the last one by each.