Natalia Lamberova
Does more patenting mean more innovation? And, if not, what is the historical evidence of incentives, imposed on patentees, to engage in transaction costs of establishing of property rights on the intellectual property objects?
New Institutional economics traditionally puts an emphasis on the importance of property rights (IPR) protection, including intellectual property rights on innovation and economic growth. D. North points out, that the creation of patent system in England contributed to the growth of specialization in systematic innovative activity. However, the positive effect of IPR protection is only evident for static analysis of innovation that disregards the possibility of further improvement. Moreover, it is based on the assumption, that every granted patent is immediately valid, and, if not, can be easily revoked.
However, the examples of intellectual property rights protection in XIX century United States, and in XX-XXI suggest, that there are potential negative effects of IPR protection on innovation. We find that the adoption of IPR in both cases was accompanied by the multiple patent manipulations, resulting in perverce effects on innovative activity and demand for innovations.
The patent system of USA in XIX century was regarded as a success, based on the number of intellectual property rights objects that obtained legal protection. However, one might note that there was a significant number of objects under protection that later became known as “Snake Oil” patents or “Patent medicine”. As the presence of such protection boosted consumer confidence in the quality of medicines, that consumers couldn’t verify prior to purchase, the patent became valuable for patentees in itself. That, in turn, led to growth of asymmetry of information in the market for medicine.
XXI century Russia provides another interesting case of patents that cover “technologies” that cannot be implemented – the chemical reactions that cannot run, or would cause massive destructions, if they were performed, etc. But innovative firms would not buy fake patents, as they perform their own expertise in order to lessen production risks. However, there is a potential “buyer” for fake patents: the government decides whether to finance innovative project with a grant or not based on the number of patents and publications of the researcher. Hence, due to the poor expertise of Russian patent office, fake patents are used not as a signal of quality of a technology (which can be very low), but as a signal of qualification of a researcher (which is judged upon a number of patents, not their quality). This kind of manipulations in patent system creates information asymmetry at the market of Russian patents, where the innovative firm is a “buyer”, thus lowering the demand for patents (as suggested by data).
It is easy to note, that in both cases intellectual property rights, introduced to a signaling problem, create negative incentives that lower the quality of life of a consumer and further demand for innovation. Stricter patent expertise that can become a solution to this problem creates higher transaction costs for sequential innovation.
