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January 28, 2004
Patents in Practice
Posted by Arnold
Alex Tabarrok points out that patents work differently in theory and practice.
The key element in the economic theory is that pioneer firms have large, hard to recoup, sunk costs. Yet patents are not awarded on the basis of a firm's sunk costs. Patent law says the subject of a patent should be novel, useful and non-obvious but nowhere does it say the original idea should have required extensive costs of research and development as the economic theory would predict.
Comments (5)
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1. Shawn DuBravac on January 28, 2004 11:28 AM writes...
A thought on Alex's patent post: Why should I be awarded less monopoly power because I am able to come up with an idea using less resources then someone else. If I felt that I was going to be given a shorter patent life, then I would do everything I could to raise my (perceived) R&D costs. This would clearly be a less efficient use of resources.
Permalink to Comment2. Arnold Kling on January 28, 2004 05:57 PM writes...
Right, Shawn. I haven't read Tabarrok's paper, but I think the solution has to be to grant the patent based on an estimate of what the "reasonable" research costs ought to be. As you say, using actual costs invites gaming.
Permalink to Comment3. Ed Felten on January 29, 2004 09:43 AM writes...
Making hindsight estimates of the "reasonable" cost of devising some invention sounds like a regulatory nightmare. I can't imagine how it could be done fairly and accurately. Also note that inventors don't always set out to invent some particular widget. Sometimes they just happen to stumble onto something valuable; and it's not unreasonable for the patent system to reward people for stumbling around in the right vicinity.
Permalink to Comment4. Arnold Kling on January 29, 2004 07:41 PM writes...
Ed makes a good point. My view of intellectual property in general is that there is no perfect solution--only choices among imperfect solutions. Of the imperfect solutions, I think that sometimes patents turn out to be one of the worst. I give you business process patents as exhibit A on that score.
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