They”re a common index of technological creativity, but research finds they can impede rather than encourage it
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In ancient times, the story goes, cooks in the city of Sybaris were granted yearlong monopolies for the sale of unique dishes they created. Since then, generations of inventors have relied on patents to discourage copycats from stealing their best ideas. Economists, in turn, have tallied up patents to try to measure innovation (an otherwise squishy concept to define and assess), which has long been tied to economic growth. Certainly, the thinking went, protecting inventors’ work must encourage new ideas in the marketplace.
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But counting patents can lead researchers astray, argues New York University economist Petra Moser. In the 2016 article “ Patents and Innovation in Economic History,” Moser explained why, writing that in some cases patents actually squelch innovation rather than stoking it.
CREDIT: JAMES PROVOST (CC BY-ND)
Economic historian Petra Moser
New York University
Knowable Magazine asked Moser to explain economists’ love of counting patents, and to tell us a bit about her own research. Her work relies on data from unexpected sources beyond patent registers, including historical ones such as world’s fair catalogs and records of opera performances. She also addresses why taking a new approach to measuring innovation might offer a better bead on creativity.
This conversation has been edited for length and clarity.
What is innovation, and why is it good, from an economic point of view?
I’m reading a history of the world to my children right now, and we’ve just finished learning about the Bronze Age. Throughout time, if there was a new product that had better properties and was easier to use, you could trade more stuff, and people could get more to eat.
You could start with bronze, but there have been many examples throughout history. In the early twentieth century, American plant scientists found that new types of hybrid corn produced higher yields than the old varieties. With the same resources you could feed many more people, or free up farmers to do different types of work.
These were innovations. There are lots of definitions of innovation, but in the context of my research, innovation is a new product, or a better or cheaper practice that produces an existing product. Innovation promotes well-being, and that makes it good.
What do patents have to do with it?
The idea of the patent system was to grant the original inventor a property right that would encourage people to invent. The first US patent was registered in 1790 — to a Philadelphian named Samuel Hopkins, who had invented a new process for making potash, an ingredient in fertilizer.
Plant breeders, for instance, argued that they needed intellectual property rights because it takes extremely long to create an improved apple or an improved rose. But once you have created that improved apple, it’s very easy for someone else to take a cutting off your tree, graft it to another tree, and then basically have the exact properties of the innovation that you developed, without any of the cost.
In areas like that, you need some kind of intellectual property right like a patent, because there’s no natural protection against competition.
And economists love studying patents, right?
Intellectual property rights have been one of the most widely used measures of innovation, yes. We have counted patents because they are the most systematic and the largest source of data on innovation. Every time somebody applies for a patent, it gets recorded.
Scholars started by comparing the numbers of patents issued before and after a change in the patent law. Or they would compare the rates of patenting in one region versus another. Or they would compare the rates of patenting in one industry versus another.
People still do this — they say, oh, the software industry has become more innovative because patenting has increased.
But this kind of analysis is often incorrect. Sometimes people can apply for lots of patents without actually being super innovative. Other times, an industry can be exceptionally innovative without patents.
Go back to agricultural innovation. There was an insane period of innovation in American agriculture during the 1910s, ’20s and ’30s, with many advances in hybrid corn, new types of fertilizers and new ways to fighting pests.
It was a period in which the law did not allow inventors to patent most agricultural innovations. If patents are your only way of capturing innovation, you’d say there was nothing going on in American agriculture back then. But that could not be more wrong.
So you started looking for ways to study innovation without relying only on patent counts.
Yes. You can’t really examine the effect of patent laws on innovation by just looking at patents. If you want to argue the benefits of having a patent system, what you really need is some comparison of innovation in countries with and without patent systems — and by definition you can’t really measure patents in a country without patent laws. You need some other measure.
I started looking for an alternative measure of innovation that was independent of the patent system. It’s not easy at all. It’s hard to capture innovation systematically, across industries and over time.
What did you come up with?
I started studying the world’s fairs. These were expositions where countries could present innovations even if they didn’t have a patent system, and inventors from countries with patent laws would sometimes show products that they had not yet patented or weren’t planning to patent because they didn’t think it was necessary.
These fairs were huge. If you wanted to walk through the entire exhibition at the 1851 World’s Fair in London it would be like walking a marathon. I thought, if it was that large, there had to have been some kind of systematic recording — otherwise, people would get lost. And it turned out the fairs had extensive catalogs of their exhibits, and these are great sources of data on innovation.
What can these catalogs show us?
Whether countries without patent laws can be innovative. The catalogs made it very easy to look at these kinds of nations — Switzerland and Denmark at the 1851 fair and the Netherlands in 1876. I was struck by how innovative these places were. Some had a very high share of innovations per capita and they also had really high-quality innovations that won a high share of awards.
In general, I was surprised how few of the innovations at the fairs were patented. This tells us that having a patent system is not a necessary condition for being innovative. Patents are useful in cases like the improved apple I described, but you don’t always need broad patent protection to encourage innovation.
What else did you find?
We were able to show another reason that patents aren’t necessarily a great proxy for innovation: differences in the use of patents across industries. If the share of innovations that are patented is low but remains the same across industries and over time, then patents are still a perfect measure of innovation — we can essentially just scale it up and there’s no problem for analysis.
But my research shows that’s not the case. The share of innovations that are patented varies strongly across industries. In manufacturing machinery, roughly 50 percent of all innovations are patented. In chemistry in the 1850s, almost nothing was patented.
If I can keep something secret, I don’t need a patent. Take indigo, which has always been extremely valuable. There were lots of efforts to reverse-engineer it for thousands of years, but it wasn’t possible before modern chemical analysis.
If you had developed an improved dye in the 1850s, it’s not clear that you would want to patent it, because you may have to disclose your innovation, and then the patent would expire. If your invention is extremely complex relative to the tools of analysis that your competitors have available, then you’re often better off just keeping it secret.
I think that’s where the real issue comes in with using patents as a measurement for innovation. You can get the wrong idea of which industries are innovative and which are not innovative.
Is that still the case today?
Well, think about the software industry today. There are more patents now on methods that were not patentable before. But does that means there’s more innovation? I think most people would say that isn’t the case.
Have you been studying any current policy issues?
One big policy question today has to do with patent pools, which allow competing firms to combine their patents and use them as if they were a single unit — agreeing, basically, not to sue each other when they borrow each other’s inventions. These are very prevalent in some industries today, like software. I haven’t looked at the most recent statistics but the phone that I’m holding is probably covered by hundreds of patents that are included in a pool.
What lots of economists say today is that in many cases firms decide to pay the lawyer to litigate, rather than pay the engineer to create something new. We think that is a misallocation of resources.
So to check that, and understand how patent pools impact innovation, I examined the first such pool in the US, which involved sewing machine companies during the nineteenth century. I looked at patent data and at an independent measure of creativity: the sewing speeds of the different machines of the era. We read sources from the era and saw that people cared most about rate and speed and noise — but most important was speed, because the faster you could sew the more you could produce.
After the sewing machine pool was formed, there was a decline in patents for sewing machines. But we also found that there was a measurable decline in creativity — sewing speeds didn’t increase — over the duration of the pool. If you’re a small outside firm and you’re facing litigation not only from one large firm but from five large firms, you’re not going to invent in that area. The pool discouraged innovation because small inventors went somewhere else.
What’s another current policy question that this approach can illuminate?
What did you find?
That’s very different than what we found when we looked at the broad sewing patents that were issued a few decades later. The policy implication for today is that intellectual property rights that are narrower could encourage innovation where broad patents fail.
Why did you decide to study innovation and creativity in the first place?
Before I got my PhD I worked for a consulting company that was estimating the potential market for a new medical imaging technology. It seemed very promising – it would have reduced radiation exposure when you take medical images of children. But we found that the estimated market size was too small — hospitals just didn’t have any money to buy the technology. So essentially we killed it.
That really impressed me at the time. I had seen that this technology could help save lives, but the company decided it wasn’t worth the time.
The experience drove home to me how important incentives are. People say how great certain types of innovations are, but if no one’s willing to invest in them, they aren’t going to help anybody.