Impact of patent expiry on the pace of innovation

Does anyone know of any good economics articles/studies, looking at what happens to the pace of innovation in a technology when patents expire? I know that there are some examples of key patent(s) expiring and a subsequent explosion of innovation (e.g., 3D printers) but would love to learn more about other examples or studies that people are aware of.

I was reflecting that before the launch of the Cupcake CNC (the first commercially available RepRap-based printer), you couldn’t purchase any kind of 3D printer for less than $10k. There was maybe a fancy one somewhere at your work or University. One decade later, you can buy an Ender 3 (a totally decent, OSHWA-certified 3D printer) for <$180. That’s <2% of the 2009 price. That is bananas!!! Would love to see the Moore’s law (transistors), Carleson Curve (DNA) curve for 3D printer price/performance.

I’ve overheard several Venture Capital investors advising companies not to compare themselves with 3D printers because 3D printing was a flop (i.e., those Venture Capitalists didn’t make any money on the companies they invested in). I cannot imagine how anyone could look around in 2021 and say that 3D printing has been a flop with a straight face and expect to be taken seriously…

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I have had a look for this too. I have found more things about the general issue with modern patent being both overly broad, but also not explaining innovations in enough technical detail to copy. The original purpose of a patent was to speed innovation by increasing information. You tell everyone exactly what you did, and in return you get a short monopoly. For context on what is meant by “short” in a short monopoly ,in 1624 British patent law read

“for the term of 14 years or under hereafter to be made of the sole working or making of any manner of new manufactures within this Realm to the true and first inventor”.

Patent terms are now 20 years! Which is ludicrous considering how much faster innovation moves now.

As one other bit of British patent history (from wikipedia!). It is worth noting that patents were almost abolished in the 1850s after some of the most famous engineers of the time campaigned against them. A contemporary source summarising the argument as:

[Patents] projected an artificial idol of the single inventor, radically denigrated the role of the intellectual commons, and blocked a path to this commons for other citizens — citizens who were all, on this account, potential inventors too. […] Patentees were the equivalent of squatters on public land — or better, of uncouth market traders who planted their barrows in the middle of the highway and barred the way of the people.

170 years later the problem remains. We still need to stand up for intellectual commons.

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Hi, Ryan:

I’ve been following this topic for a while. Here are some selected references from a literature review for a project that never got off the ground. Let me know if any of them look interesting, and I might be able to dig up the papers. Hope this helps!

Bessen, J. (2004). Holdup and licensing of cumulative innovations with private information. In Working Paper. https://doi.org/10.1016/j.econlet.2003.08.004

Boldrin, M., & Levine, D. K. (2002). The case against intellectual property. In Working Paper. https://doi.org/10.1257/000282802320189267

Bound, J., Cummins, C., Griliches, Z., Hall, B. H., & Jaffe, A. (1982). What does R&D and who patents? In NBER Working Paper Series (Working Paper No. 908). https://doi.org/10.3386/w0908

Érdi, P., Makovi, K., Somogyvári, Z., Strandburg, K., Tobochnik, J., & Zalányi, L. (2013). Prediction of Emerging Technologies Based on Analysis of the U.S. Patent Citation Network Department of Biophysics. Scientometrics, 95(1), 225–242. https://doi.org/10.1007/s11192-012-0796-4

Eurequa, D. E., Guellec, D., & Martinez, C. (2003). The economics of patents: from natural rights to policy instruments. Working Paper.

Frank, S. J. (2009). The Death of Business-Method Patents: From now on, you can get a U.S. patent only on a mousetrap–not on the idea of catching mice.

Grabowski, H. (2002). Patents and New Product Development. Working Paper.

Grabowski, H. (2002). Patents, Innovation, and Access to New Pharmaceuticals. Working Paper. https://doi.org/10.1017/CBO9781107415324.004

Hall, B. H., Graham, S., Harhoff, D., & Mowery, D. C. (2003). Prospects for Improving U.S. Patent Quality via Postgrant Opposition. In Innovation Policy and the Economy (Vol. 4). https://doi.org/10.3386/w9731

Hall, B. H., & Ziedonis, R. H. (2007). An Empirical Analysis of Patent Litigation in the Semiconductor Industry. American Economic Association Annual Meeting, (January). Chicago.

Hall, B. H., Thoma, G., & Torrisi, S. (2007). The Market Value of Patents and R&D: Evidence From European Firms. In NBER Working Paper Series (Working Paper 13426). https://doi.org/10.5465/AMBPP.2007.26530853

Hall, B. H., & Lerner, J. (2010). The financing of R&D and innovation. In Handbook of the Economics of Innovation (Vol. 1, pp. 609–639). https://doi.org/10.1016/S0169-7218(10)01014-2

Hall, B. H., Helmersy, C., Rogersz, M., & Sena, V. (2013). The importance (or not) of patents to UK firms. Oxford Economic Papers, 65(3). https://doi.org/10.1093/oep/gpt012

Hall, B. H., Helmers, C., & von Graevenitz, G. (2015). Technology Entry in the Presence of Patent Thickets. NBER Working Paper 21455. https://doi.org/10.3386/w21455

Janis, M. D. . (2002). Patent Abolitionism. Manuscript. https://doi.org/10.1017/CBO9781107415324.004

Kanwar, S., & Evenson, R. E. (2001). Does Intellectual Property Protection Spur Technological Change? (Discussion Paper No. 831). New Haven.

Kemmerer, J. E., & Lu, J. (2012). Profitability and royalty rates across industries : some preliminary evidence.

Litan, R., & Singer, H. (n.d.). Unlocking Patents: Costs of Failure, Benefits of Success.

Miller, S. P., & Tabarrok, A. (2014). Ill-conceived, even if competently administered: Software patents, litigation, and innovation-A comment on Graham and Vishnubhakat. Econ Journal Watch, 11(1), 37–45.

Pakes, A., & Griliches, Z. (1980). Patents and R&D at the Firm Level: A First Look (Working Paper No. 561).

Sampat, B., & Williams, H. L. (2015). How do patents affect follow-on innovation? Evidence from the human Genome. Working Paper. https://doi.org/10.1007/s13398-014-0173-7.2

Tabarrok, A. (2002). Patent Theory versus Patent Law. Contributions to Economic Analysis & Policy, 1(1), 1–26. https://doi.org/10.2202/1538-0645.1039

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Wow, that’s a lot! Thank you!!! Any chance you could give a quick high-level summary or is there a particularly good review you would recommend? Not sure where to start on that list :wink:

There’s also been some interesting thinking on the topics of automatic licensing (no one can prevent you from using a patented technology as long as you pay a nominal royalty), a public registry of royalty rates to facilitate price discovery, and various proposals to shorten the time period for patents. Along with right-to-repair, this is a topic where I am actively looking for opportunities to help change policy in the U.S., so let me know if you have any ideas!

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It seems to vary by industry. With plant breeding, for example, there’s a case to be made that patents are nothing more than rent-seeking behavior with little social benefit. In manufacturing fields, patents may not have a huge impact, because if there are many ways to do something, unless there’s a clearly superior, unique process that’s been patented, it doesn’t really impede progress.

The whole process of patenting involves making the information publicly available, so it’s kind of a two-edged sword: you might get a 20-year monopoly on the thing you did, but someone might come along and engineer something even better. All the more reason to build a business model on open innovation IMO.

For the question of the impact of patent expiration, I would recommend the recent work by Alex Tabarrok and the 2015 paper by Bronwyn Hall on technology entry in the presence of patent thickets.

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FWIW, I often quote the example of the steam engine patent by J. Watt, very lucidly described in chapter 1 of Boldrin and Levine’s “Against Intellectual Monopoly”, a reference worth reading in its entirety for those who have a bit of time. Quoting from the text:

During the period of Watt’s patents the U.K. added about 750 horsepower of steam engines per year. In the thirty years following Watt’s patents, additional horsepower was added at a rate of more than 4,000 per year. Moreover, the fuel efficiency of steam engines changed little during the period of Watt’s patent; while between 1810 and 1835 it is estimated to have increased by a factor of five.

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That is a beautiful example, thank you @Javier! Makes me want to go back and re-read William Rosen’s “The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention” !

That is a fantastic quote. I know Watt was very monopolistic with patents which stopped licensing. For example Watt and Boulton were not able to use a crank to convert linear to rotary motion due to an existing patent. Rather than cross license their patents Watt invented a more costly, less efficient, sun and planet system just to avoid giving up his monopoly.

Also worth noting that the efficiency improvements were not like for like as much came from the Cornish cycle where the motion pauses. This makes a really efficient water pump or man engine, but cannot drive a mill. I suppose the point here was even though Watt never used the steam expansion efficiencies of the Cornish cycle, his patent was broad enough to cover it.