Dec 022013

stephan-kinsella-b-300x284[Stephen Kinsella, Center for the Study of Innovative Freedom, Link (CC-BY)] Patents are often used as indicators for economic and innovative progress.1 The assumption is that many patents represent innovation, and also that many innovations are patented. Patent records thus correlate with innovation.

A fascinating new paper, “Reassessing patent propensity: evidence from a data-set of R&D awards 1977-2004,” by Roberto Fontana, Alessandro Nuvolari, Hiroshi Shimizu, and Andrea Vezzulli (Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon, Working Papers series number 2013/09; Mar. 2013), carefully examines this issue. The authors studied the innovations from the ”R&D 100 Awards” competition organized by the journal Research and Development, which, since 1963, “has been awarding this prize to the 100 most technologically significant new products available for sale or licensing in the year preceding the judgments.” I.e., this is a list of important and “technological breakthrough” innovations over almost 3 decades.

The authors searched the patent records for all of these innovations to determine which of them were patented or not, and conclude “a relative low number of important innovations are patented“. In particular, they found that only about 10% of “important” inventions are patented (this number varied a bit based on the industry). This implies that most important innovations are not patented. For most innovations, the innovating companies rely on trade secrecy, lead time/first to market advantages, or other strategies, instead of on the patent system.

One obvious conclusion to be drawn from this study is that patents are not a significant driver of most innovation, if 90% of important inventions are never patented in the first place. Proponents of the patent system often claim that patents are necessary to provide an incentive to innovate; some even (ridiculously) claim that without patents, all innovation would grind to a halt (the truth is the opposite: if patents were made universal and had a perpetual term, all human life would grind to a halt; no offense Galambosians). But even if the 10% of innovations that are patented would never have resulted without the incentives provided by a patent system (an absurd assumption), the great bulk of technological innovations and breakthroughs in modern times would still have come about.

(This paper, by the way, deals with “important” or technological breakthrough innovation. What about more trivial or mundane innovations? There are three possibilities: (a) an even lower percentage of trivial innovations are patented, (b) about the same percentage of trivial innovations are patented as for important innovations, or (c) a higher percentage of trivial innovations are patented. In the latter case, this simply means that a large fraction of the patents actually issued cover junk and trivial innovation.)

None of this is surprising, given the way the patent system is often used in corporate America.2 This jibes with the evidence, too. For example, in ch. 9 of Against Intellectual Monopoly, economists Boldrin & Levine take a look at 15 fundamental medical and pharmaceutical discoveries and innovations (as selected by medical doctors and medical journals such as the British Medical Journal). They are:

Penicillin, x rays, tissue culture, ether (anaesthetic), chlorpromazine, public sanitation, germ theory, evidence based medicine, vaccines, the pill, computers, oral rehydration therapy, DNA structure, monoclonal antibody, technology, smoking health risk.

How many entries in this list were patented, or were due to some previous patent, or were obtained during a research project motivated by the desire to obtain a patent? Two: chlorpromazine and the pill. Is this a fluke? We do not think so. In the same issue (freely available on line) of the BMJ you can find references to other similar lists. A particularly interesting one was compiled since 1999-2000 by the US Centers for Disease Control and Prevention (CDC): a top 10 list of public health achievements of the 20th century in the United States. How do medical patents score on this one? Zero. The editor of the BMJ, recognizing the intrinsic arbitrariness of any top-N list, somewhere in the editorial presentation names her three beloved ones among the excluded, “Where are Aspirin, Helicobacter pylori, and Medline?” Good point, and we ask: do they owe anything to patents? Not at all.

So, let’s see. The patent system distorts, skews,3 and hampers innovation and competition, imposes hundreds of billions of dollars of net costs on the US and global economy every year,4 and is not necessary to stimulate innovation (in fact, it does not stimulate innovation at all).5  People say it is needed to incentivize innovation, though this is clearly false: there has been and would be innovation without and before patent law; people innovate for a variety of reasons; there is no proof that there is any net innovation stimulated by the modern patent system nor that any such net innovation is worth the cost of the patent system.6 What patents do is create barriers to competition, increased consumer prices, reduced innovation, and oligopolized industries.7

“But wait!” as the informercial carnies will tell you—”there’s more!” Patent law is not just about incentivizing innovation; it’s about inducing people to disclose innovation they would otherwise maintain as a trade secret.8 Except … the patent system does not really do this.9 Most innovations are disclosed when the inventor starts selling the product embodying the new idea; in many cases the new features are loudly trumpeted in advertising, packaging, and PR. The rare inventions that can be kept secret while the resulting product is sold (e.g. a mundane product like a chemical produced by a unique process) will not be patented and will be maintained as trade secrets, even with a patent system in place.

In other words, a patent system does not encourage innovation, and it does not result in disclosure of innovation. It is simply a dead weight drag on the economy, society, the free market, and human liberty, and a wealth transfer from consumers and small companies and ordinary innovators to the connected state-favored IP grantees.

Update: See Mike Masnick’s post Over 90% Of The Most Innovative Products From The Past Few Decades Were NOT Patented, who notes:

A stunning 91% of all of the technologies receiving the prize were not actually patented. That’s covering approximately 3,000 technologies winning this award as the most innovative advancement of the year over a period of about three decades. What’s interesting to me is that this actually matches very closely with one of my favorite studies on patents, from economist Petra Moser, who looked at historical patenting rates from the 19th century using data on products displayed at the Crystal Palace exhibition of 1851 and the Centennial exhibition in Philadelphia in 1876, which against showed very few of the “economically useful” inventions were patented. Over 80% were not patented. Of course, you might think that back in the 1800s there was less interest in patenting, but this new study suggests a rather similar rate to what Moser found from 150 years ago.

… All in all, this is a really interesting paper and a significant contribution to the discussion over whether or not patents are really a good judge of innovation. It would seem from the data available that the answer is a very loud “no.” In fact, it would appear that very few of the most significant and important innovations are being patented. That should, at the very least, raise considerable questions concerning those who argue that our patent policy is necessary to encourage innovation, or those who argue that numbers from the patent system are a good judge of innovation.

  1. See, e.g., Pierre Desrochers, On the Abuse of Patents as Economic IndicatorsQuarterly Journal of Austrian Economics (Winter 1998) . []
  2. See my post The “Productivity” of Patent Brainstorming. []
  3. Milton Friedman on the Distorting Effect of Patents.  []
  4.  Costs of the Patent System Revisited; Legal Scholars: Thumbs Down on Patent and CopyrightThe Overwhelming Empirical Case Against Patent and Copyright; IP imperialism posts.   []
  5. Mark Lemley: The Very Basis Of Our Patent System… Is A Myth.  []
  6. There’s No Such Thing as a Free Patent.  []
  7. The Microsoft-Apple Gesture Oligopoly.   []
  8. See  “The” Purpose of Patent Law. []
  9. See Masnick, Can We Get Rid Of The Disclosure Myth For Patents?  []

  4 Responses to “Study: Most Important Innovations Are Not Patented”

  1. The cause and effect is clearly lacking in your conclusion as seen by this little explanation given by the authors in their study:

    “Cohen et al. (2000) asked firms to report the share of innovations for which they have applied for a patent which, again, is somewhat different from the variable we have constructed in this paper.”

    In other words, these guys: a) used a time window that they acknowledged was incomplete in terms of finding patents; b) had to guess about how to find the overlap of “innovations” and patents; c) didn’t use the self-reported number of the innovators themselves on whether they had applied or not.

    The fact of applying for protection is far more relevan than the lack of an issued patent, as the latter can be due to any host of factors. The key takeway, as noted by Cohen and reported in Table 9 of this article, is that ALMOST 50% of all innovations are the subject of patent filings by their owners.

    Patents are more important to innovation than ever – at least to any responsible entity that cares about the value of their intellectual property.

    • “Patents are more important to innovation than ever – at least to any responsible entity that cares about the value of their intellectual property.”

      What’s your backup for this statement? It’s simply propaganda; an assertion.

  2. ‘patents are not a significant driver of most innovation’

    That’s a first rate job of dissembling. Think about it. Would you bet your company on a technology you cannot protect? If you cant protect it, your little firm becomes a free r&d branch for your largest competitors.You create it and they steal it.

    Just because they call it patent “reform” doesn’t mean it is.

    All this patent ‘reform’ talk is mere dissembling by China, huge multinational thieves and their paid puppets -some masquerading as reporters, some in Congress, the White House and elsewhere in the federal government. They have already damaged the American patent system so that property rights are teetering on lawlessness. Simply put, their intent is to legalize theft -to twist and weaken the patent system so it can only be used by them and no one else. Then they can steal at will and destroy their small competitors AND WITH THEM THE JOBS THEY WOULD HAVE CREATED. Meanwhile, the huge multinationals ship more and more American jobs to China and elsewhere overseas.

    Do you know how to make a Stradivarius violin? Neither does anyone else. Why? There was no protection for creations in his day so he like everyone else protected their creations by keeping them secret. Civilization has lost countless creations and discoveries over the ages for the same reason. Think we should get rid of or weaken patent rights? Think again.

    Most important for America is what the patent system does for America’s economy. Our founders: Jefferson, Franklin, Madison and others felt so strongly about the rights of inventors that they included inventors rights to their creations and discoveries in the Constitution. They understood the trade off. Inventors are given a limited monopoly and in turn society gets the benefits of their inventions (telephone, computer, airplane, automobile, lighting, etc) into perpetuity and the jobs the commercialization of those inventions bring. For 200 years the patent system has not only fueled the American economy, but the world’s. If we weaken the patent system we force inventors underground like Stradivarius and in turn weaken our economy and job creation. For a robust economy America depends on a strong patent system accessible to all -large and small, not the watered down weak system the large multinationals and China are foisting on America.

    For the truth, please see

  3. FYI it’s Stephan not Stephen. there are a couple of European Stephen Kinsella’s, neither me nor libertarian.

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