Thursday, May 25, 2017

Professor Stephen Haber - Patents and Wealth of Nations

Tonight, I recommend reading Professor Stephen Haber's article Patents and Wealth of Nations. This article debunks the myth that the US economy is harmed by patents. I haven't read the entire article, but whatever I read made sense and was interesting. For example, please check out this passage addressing Bessen and Meurer's misleading claim that PAE's resulted in a $29B tax on innovation:

"There is also no convincing evidence that PAEs negatively affect innovation. Professors Schwartz and Kesan, for example, analyze the data and methods employed by Bessen and Meurer to produce the widely cited claim that in 2011 PAEs generated a direct tax on innovation of $29 billion.

Their analysis effectively undermines the Bessen-Meurer claim. Kesan and Schwartz point out that the Bessen-Meurer estimate is generated from a survey of eighty-two business enterprises regarding their experiences with PAE litigation, but those firms were neither randomly selected nor chosen so as to generate a representative sample. Rather, Bessen and Meurer relied on a survey sent to “‘about 250 companies,’ which include ‘RPX clients and nonclient companies with whom RPX has relationships.’” RPX is a business enterprise that describes itself as a defensive patent aggregator. There are therefore multiple reasons to be concerned about sample selection bias.

Kesan and Schwartz also demonstrate that Bessen and Meurer conflate “costs” with “transfers.” Slightly less than one-quarter of their $29 billion figure ($6.7 billion) represents actual litigation costs; the vast majority of the $29 billion is composed of settlement, licensing, and judgment amounts, which are the rewards that patent holders should have received for their intellectual property in the absence of infringement.

Kesan and Schwartz also point out that Bessen and Meurer do not ask whether the $6.7 billion in litigation costs is a large number in relation to some benchmark. They ask how $6.7 billion compares to the amounts spent by operating companies that regularly sue each other for patent infringement (e.g., cases such as Apple v Samsung). We would point out deadweight losses are usually assessed as a percentage of GDP, and on that basis the $6.7 billion in PAE litigation costs in 2011 amounted to only 0.05 percent of America’s $15.5 trillion national product. To put this in context, $6.9 billion was the amount Americans spent in 2015 on Halloween.

Finally, Kesan and Schwartz note that any analysis of costs must be balanced by an analysis of benefits, but these are ignored by Bessen and Meurer. Recall here the history of the laser. The initial patents generated lengthy and costly litigation financed by a PAE. But who would maintain that those costs represented a deadweight loss to the U.S. economy in light of the hundreds of billions of dollars generated by the commercialization of laser-based products over the past five decades?"

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