Alexander Tabarrok, of the Marginal Revolution and George Mason University, writes this paper, Patent Theory versus Patent Law about, you guessed it, how patent theory compares to patent law as it is practiced. Refer to this blog post on how to get the PDF.#

Abstract#

The abstract, verbatim:

According to the economic theory of patents, patents are needed so that pioneer firm have time to recoup their sunk costs of research and development. 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, in fact, ignores costs. The disconnect between patent law and patent theory suggests either that modifying patent law so that it better fits with patent theory would reduce the costs and inefficiencies associated with current patent practice or that the standard economic theory of patents is wrong.

Introduction#

Alexander first explains the economic theory briefly and then puts forth the shape of his argument:

Although the economic theory is well accepted, I argue that it does not fit well with the actual patent system. A patent system designed around the idea of recouping sunk costs would look quite different than the current system. In particular, as I will explain below, the current system ties returns to innovation to the benefits of a patented idea, i.e., as the value of the idea increases monopoly profits increase. Yet the economic theory of patents implies that returns should be tied to the sunk costs of researching and developing the patented idea.

The poor fit between the economic theory of patents and the actual patent system suggests two alternative hypotheses. Either the theory is correct and the patent system is poorly designed, or the patent system is well designed but not for the purposes of recouping sunk costs. Which of the two hypotheses one prefers depends in part upon one's priors about therelativeefficiency of theory versus practice. My primary approach is to assume that the economic theory is correct. Thus, I argue for reforms that would bring the patent system more into accordance with the economic theory.

Theory#

This section explains the theory of patents and briefly mentions that the current patent system is not connected to the economic theory because it ignores the costs that innovates face that imitators do not. Those are sunk costs that the economic theory is concerned with.

An interesting observation of this section is that when a product's value is high, it should not be protected as much as a product whose value is low. This is because since the sunk costs are not related to the benefits, they are repaid easier.

Practice: Examples of Patented Products with Low Innovation to Imitation Costs#

Amazon's "one-click purchasing" is a patent that was granted for something with little to no R&D costs. Another is the discovery of a medical procedure, which by definitions means there were not R&D costs.

Edison famously said that "Genius is one percent inspiration, ninetynine percent perspiration."⁸ A patent system should reward the ninetynine percent perspiration, not the one percent inspiration. In inventing the lightbulb, for example, Edison laboriously experimented with some 3000 possible materials for the filament, before hitting upon carbonized cotton thread (Shulman 1999). If Edison were to patent the lightbulb today he would not need to go to such lengths. Instead, Edison could patent the use of an "electrical resistor for the production of electro-magnetic radiation," a patent that would have covered oven elements as well as lightbulbs.⁹

Proposal#

The key thing that needs to be done is that the sunk costs of an patented product must be integrated into patent policy, somehow. Alexander proposes multiple ways of doing this:

• Changing what products can be patented, preferably by looking at standard innovation/imitation cost ratios in the industry.
• Changing the probability that a patent is granted (or enforced.)
• Changing the length of the patent.
• Changing the breadth of the patent.

An interesting suggestion is to register innovations but not award patents, instead you wait twenty years and estimate how much the innovation was worth and award that with interest. This solves the problem of not being able to estimate correctly the benefits of the innovation before hand.

The "realistic" proposal that does not strive for complete perfection is to allow firms to apply for patents of varying lengths, and as the length increases the scrutiny of the patent office. But, Alexander tries to point out many changes that may not require legislation and would instead modify the discretion of patent examiners and infringement judges.

Objections and Implementation#

"Perhaps the strongest objection against a patent system that takes into account sunk costs is that measuring sunk costs is difficult (Scotchmer 1988).²¹ If the sunk costs are born by the patent applicant then this problem does not seem overly difficult."

And ever the economist:

In order to improve the current system it is not necessary to estimate sunk costs precisely so long as they can be estimated well enough to reasonably assign patent duration to a limited number of categories. If sunk costs justify a patent of 20 years, for example, it's unimportant whether they are two, three or four times greater than necessary. The thrust of this proposal is to make marginal changes in the current patent system rather than to replace that system with something entirely new.

(Note: There's a typo in note 23, "The higher sunk costs are" not "The higher are sunk costs"--I think.)

There is Little to Lose from Patent Reform#

If it were clearly true that on net the patent system increased economic growth and technological advancement then on precautionary grounds alone there would be a good case against reform. But the consensus from many studies of innovation is that most innovations would occur without patents.

Alexander then discusses the proof of this that has been studied and documented by others. He also cites in the footnotes someone, Cohen et al. (2000), who found that "much patenting is simply generated by the patent system itself as firms patent in order to protect themselves from the patenting of other firms."

But, Tabarrok recommends merely weak patents in cases where there are not useful, because they are useful in some instances. He is not completely against patents for any ideological reason.

Other Theories of Patents#

In this section he addresses the concern that perhaps the economic theory of patents is wrong and that either another theory is necessary, whether it is another defined one (e.g. the disclosure theory) or a theory implicit in the current patent system.

Conclusion#

Another brief summary like the abstract.

And here, I will leave myself a note to compare this paper with François-René Rideau's discussion of patents in Patents Are An Economic Absurdity, when I get a change to read it.#

Cynthia Rockwell comments on Lost in Translation.#

The ass shot that opens Lost in Translation. My first reaction: groan of disgust. Why is this necessary. Why would a female director start her film this way. What does this have to do with anything. Why do I suddenly want to *shake* Sofia Coppola.

But now I think it may be beautiful. The film is very much about a girl having trouble growing up. She is a girl in a woman's body. Her panties are little-girly-pink, yet see-through. Childlike and adult, at once. It's not a thong. We see that she's wearing a sweater. Not naked, not just a bra, but a sweater. And she stirs, moving one of her legs. A woman resting, not a woman displaying herself for you. Her back is turned to you. She is thinking, she is in her world, she is not for you.

Cynthia may be interested to read about the artist, John Kacere, whose artwork inspired that shot. Michael at 2blowhards.com gives the scoop.

AKMA talks about the atonement theology that The Passion supports.#

Now, one of my favorite aspects of atonement theology is that the atonement has never been the subject of an ecumenical consensus. People advocate one or another theory loudly, they anathematize people who don't agree with them, but there's no creedal formula, no Chalcedonian definition of the atonement. In other words, although specific Christian groups may adhere exclusively to one or another version of the atonement, the ecumenical church has never adopted a single articulation of the doctrine.

Mel Gibson's approach to the atonement — one which has met with great enthusiasm among evangelicals — seems to involve the premise that in order to redeem the sins of humanity, foul and bitter though they be, Jesus had to suffer the most intense possible physical agony.

Dean Esmay wants rap recommendations. I would recommend De La Soul, Jurassic 5, A Tribe Called Quest, Blackalicious, and Latyrx.#

Chip Gibbons writes about the problems with America's "justice" system.#

Good point! Lawyers make a lot of money writing laws that can't be understood so that we can pay them huge amounts of money to argue in court over the meaning of those laws, who broke them and who didn't.

It is a system designed to be confusing; the confusion keeps many people employed. In addition, the lawyers and judges have a monopoly on the entire process, and since the state handles licensing, it would be very hard to work in the field and challenge it at the same time.

My man Richard the Lion-Hearted posts pictures of some rad graffiti.#

Tyler Cowen writes about MyRichUncle.#

MyRichUncle provides students with Education Investments--funds for school. Upon graduation, students pay a fixed percentage of their future income for a fixed period of time. At the end of the period, their obligation is over regardless of what they have paid.

Education Investments are not loans. That means there is no principal or interest, and there is no obligation to payback the amount initially received. At the end of the payment period, your obligation is over, regardless of what you've paid.

Michael Feldman writes about South Korea's now-impeached President Roh Moo-hyun.#

Roh's election in December 2002 startled observers not only around the world but in South Korea itself, where Roh had been considered a long shot right up until election day. The very fact he was a serious contender astounded some, given his unconventional political background. The son of a peasant, he never attended college, spent years as a construction worker, and taught himself law at night until passing the bar exam. He was virtually unknow as little as three years ago, having lost four successive runs for various elected offices.

He seemed an unlikely Presidential candidate for an increasingly internationalized South Korea; he had no administrative experience to speak of, had rarely traveled outside Korea, and spoke almost no English. He was however, the first candidate. and now the first world leader, who understands how to write html.

The first bit sounds like Lincoln.

Alexander Payne wants a special kind of girl.#

I'm lonely, but at the same time very confident. I feel like no matter what I decide to do I'm going to do well, and I want to be with somebody just as confident and driven. I've previously been attracted to "quirky" girls, geeky and "alternative" girls, but so many of them either lack direction and self-assurance despite their smarts or take too much stock in their alt-appeal (you know the type, the self-glorifying and self-indulgent arty girl whose new sculpture-cum-installation you just have to see, she says, hands engaged in sweeping gestures). I've got no patience for that, and no patience for the rest of the little girls around me, taking their sweet time to grow up and evolve self-respect and motivation (not that my male peers are any better).

Me too Al3x.

Ryan Overbey calls this John Kerry advertisement "political porn." Yep.#

Julie Leung points to a couple that became vegan together. Cute.#

Julie Leung quotes Enoch's response to her question about whether cadavers are necessary for medical training.#

In many ways I think you can better use your time learning the anatomy from studying from interactive tools and paper atlases, than in the endless hours slowly peeling away layers on our cadavers. On the other hand, it's a practice that ties us to the traditions of medical training, the rigors of standing hunched over a seemingly impenetrably complexity that has bright moments of lucid enlightenment, clouded most of the time by endless layers of connective tissue. The rest of medical training isn't all that different. Especially during surgery rotations.

I think it would be a shame that future med students won't have the opportunity to work on cadavers. Sure, it was partially a big waste of time. But it taught you things other than just the knowledge of anatomy. It taught patience, cooperation, how hard you had to work to reach an elusive goal, and how to cope with not finding what you're looking for. All processes repeated many times through the rest of our medical careers.

Tyler Cowen on the question, "What do we know about the children of gay parents?"#

The bottom line: We need some good labor economists, or demographers, to tackle this problem. That being said, the policy-relevant comparison is not "gay parents" vs. "straight parents." Rather it is gay parents vs. an orphanage, or gay parents vs. not having been born in the first place. I'll put my money on the gay parents.

Julie Leung posts a flattering comment about my blog and poses some very interesting questions.#

Reading Jay McCarthy's blog, makeoutcity, is like showing up at someone's home for a potluck each night. You never know what dishes will be on the table but you know it will be good and substantial. There will be something hot and something sweet and something surprising and new to try.

Or it's like going to a party. The same party every day. A different party every day. Some people show up more often than others. Even the regular guests can be a bit unpredictable. You never know what they'll show up in or with. Or what music will be playing.

The other day I felt that what Jay chose to post seemed more like a mosaic to me. He takes pieces and puts them together. Sometimes they seem sharp and distinct. And sometimes when I look at them as a whole they make a picture.

She then discusses a great deal about decisions making and choice:

hen are children able to make a choice and live with the responsibility of it? My girls are old enough to pick out a toy at the store. But they don't yet understand money or politics. Even when they get to pick out a toy or book, sometimes it's hard for them to live with it. Later they complain or desire something different. I wonder when they will be old enough, mature enough, to make larger decisions with wisdom. At what age? Yet I still find myself complaining at times about the results of choices I made.

It is my opinion that everyone is responsible for his or her own life, and that the sooner we can admit this to them and ourselves, the sooner they are able to make decisions better. I think that we should assume everyone can take care of themselves if they ask to be left alone but offer our support if they want and if we want to give it.

What this means with voting, is that anyone who wants to vote and contributes to the government (i.e. taxes) should be allowed to, without requirement of age or anything else.

What this means with life and education, is that we should be a net and guide for our children, not an enclosed dome or forced march leader.

But, I haven't yet had children, so I'm speaking purely theoretically.

Julie, you're fantastic.