Relevant and even prescient commentary on news, politics and the economy.

Do Patents Lead to Economic Growth?

Recently I discussed a paper by David Autor, David Dorn, Gordon Hanson, Gary P. Pisano and Pian Shu. The paper noted that as competition from China increased, innovation by US firms, measured by patent output, decreased. I believe the result, but started to wonder… are patents a good measure of innovation? Do patents drive economic growth?

I don’t know how to measure innovation, but I can look at the relationship between patents and economic growth. We being by looking at patents per capita. I found patent data going back to 1840, and population to 1850.  The graph below shows patents per capita beginning in 1850. (All data sources provided at the end of this post.)

patents per capita 20170326a

Next, let’s compare that to growth rates. We would expect patents today to lead to growth tomorrow. So, I will add a line to the graph showing, for each year, the annualized growth rate in real GDP per capita over the next ten years. That is, for 1950, the growth rate from 1950 to 1960, and for 1980, the growth rate from 1980 to 1990. Unfortunately, real GDP per capita data begins in 1929, so the original graph gets truncated.

patents per capita v. annual change, real gdp per capita t to t+10

If it kind of looks to you like patents are not driving economic growth, well, it kind of looks like that to me too. In fact, if anything, the lines seem to be more negatively than positively correlated.  In years where there are more patents, the subsequent growth rate in real GDP for capita over a ten year period seems to go down.  Conversely, fewer patents in one year seem to be associated with more growth over the next ten years.

What’s going on?  Well, obviously, if there is no protection for developing intellectual capital, nobody is going to put much effort into creating that capital. On the other hand, protecting intellectual capital too well can stifle economic growth. For one, it requires spending an awful lot on on attorneys. For another, it forecloses on a lot of areas of potentially fruitful research by a lot of people who are worried about stepping into a mine field potentially defined by other people’s patents.

 

A few notes…

 

1.  I have a question. Anyone have any idea why there was a big rise in patents per capita beginning in 1983? What changed? Was it some aspect of the law? Something having to do with how research was written off? What’s going on?

2. Data… Data and estimates for the US population originates with the Census, but I’m using the set cleaned up by the Texas State Library and Archives Commission since its in an easy to use format. Since data was only available decennially with no annual estimates from 1850 to 1900, I linearized the decennial to generate my own annual estimates. Real GDP per capita comes from NIPA Table 7.1. Patent data comes from the US Patent Office.

3. If you want my spreadsheet, drop me a line at my first name (mike) dot my last name (that’s kimel with one m) at gmail with a dot com.

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Patents, innovation, asset class, and weapon

While the issues involved are complex and also involve the use of government force to make it stick, and drug patents have a long and debated history, New asset class and much more at Dealbook points to a growing phenomenon for the global economy as well. Patents and innovation deserve a separate post, but the weapons of choice is heating up and involves much more than ‘competition’:

“Patents are a volatile, spot market,” he said. “This is a market, but a market that is more like art than stocks or oil.”
Ron Epstein, chief executive of Epicenter IP Group, agreed that pricing patents, especially large portfolios, was difficult. But he said he thought corporate trading in patents would become more commonplace, and pricing more routine. Someday, he predicted, patent acquisition costs may be a standard line item in corporate earnings statements.
“By fits and starts, we are moving to a more efficient marketplace for innovation,” Mr. Epstein said.
Calling patents an asset class is shortsighted, said Kevin Rivette, a founder of 3LP Advisors. The larger value of a portfolio, he said, can be as a strategic tool to negotiate lower costs from a supplier or to alter a rival’s product plans.
“You can use patents to change the competitive landscape,” he said.

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Courts and intellectual property rights

Caught from the Washington Post…and also interesting knowing theTrans Pacific agreements allowing multinational CEOs and firms to sue in domestic courts:

Apple patents were violated by Samsung, jury rules
Apple won a sweeping victory in its landmark patent dispute against Samsung when a Silicon Valley jury ruled Friday that a series of popular smartphone and tablet features — from the rounded rectangle shape to the way screens slide and bounce to the touch — are proprietary Apple innovations.

Tokyo court finds no Samsung infringement on Apple patent in latest in global battle
A Japanese court on Friday dismissed Apple’s patent infringement claim against Samsung, a significant legal bounceback for the South Korean tech giant as the rivals wage a global battle over intellectual property. A Tokyo District Court ruled in a preliminary session that Samsung didn’t violate patents with its technology for synchronizing music and video between computers and smartphones or tablets. The ruling, the latest in a series of lawsuits and counter-lawsuits spanning at least nine countries and four continents, comes one week after a U.S. court dealt Samsung a costly defeat that could lead to an injunction against some of its devices. Samsung shares rose after the Friday verdict, helping the company recover from sharp losses earlier in the week, reports Chico Harlan:

Chinese firms put intellectual property lawsuits to work
U.S. companies have long accused the Chinese of stealing their intellectual property. But now some in China are pointing the finger back. In recent months, Apple has been slapped with lawsuits in China alleging that the most valuable company in U.S. history is infringing on patents and trademarks with a range of its products, from the iPhone voice assistant Siri to the Snow Leopard operating system. Many U.S. firms are used to accusing the Chinese of mimicking their products. But the lawsuits being filed in Chinese courts are evidence of a growing awareness in this country that intellectual property can be a valuable tool — for protecting your ideas and for squeezing money out of other companies, too, reports Jia Lynn Yang:

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