Patent Protection Does Not Lead to More Innovation

Via Matt Yglesias, Alex Tabarrok shows that historically there is no relationship between the strength of patent protection and the rate of innovation:

The trouble comes when we try to correlate the existence or strength of patent law with measures of innovation. In the 19th century, for example, some countries, notably Switzerland, Denmark and later the Netherlands, had no patents at all and other countries had weak patent rights. According to the traditional theory, countries without patents should innovate very little. Yet that was not the case — countries without patents had as many innovations as those with patents, and in international fairs such as the Crystal Palace Exhibition in London in 1851 they even received a disproportionate share of the medals for outstanding innovations. [...]

Isaac Newton said that he had seen a little further "by standing on the shoulders of Giants." Newton's story might have been different and his innovations fewer had the giants required him to pay for the privilege.

A really good example concerns aviation, where the Wright brothers' attempt to get what amounted to a patent on the airplane led to a decade-long "patent war" that nearly destroyed the US aviation industry and left the US seriously behind Europe when WW I started. The government was forced to step in and set up a patent-sharing mechanism which required all airplane manufacturers to pay into a pool, most of which went to the Wright and Curtis companies. For many years, no patents were issued in aviation at all, and when the granting of patents did resume, the government kept its dominant role in the industry, with most companies willingly waving patent rights in exchange for government research help. Under this regime, US aviation caught up to the rest of the world well before WW II.

I think we have gone mad granting patents for genes, digital devices, and "business practices" (Amazon claims to have a patent on one-click ordering), the main result of which has been a boom in patent litigation, and we would do ourselves a big favor by drastically limiting patent holders' rights.