Talk:Student Projects:IT Patents And Copyrights

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The One-Pager

So here are the requirements for the one-pager:

Each team must provide a one-page project description, which will be worth 10% of the project grade: team members, topic, sub-topics, sources, team organization, etc.

I would suggest the outline I posted for topics and sub-topics. One of the points in lecture on Thursday made me think that it would possibly be interesting to explore the "fringe" of patentable/copyrightable ideas: interfaces and file formats.

For sources: LCA at Microsoft for position papers, www.findlaw.com (Do we have access to West Law?) for case law, government web sites for policies and statutes, our Federal Congressmen (and -women) would also be able to point us to position papers and lobbyists, I would expect. Also, there is that email Prof. Lazowska just sent us about the 9 no-no's.

I don't have any strong preferences, but I think I would like to contact our Congresspeople for info.

The one page sumary

Patents, Copyright, and Software – Square Pegs for a Round Hole?

o Anoop Gupta, Microsoft,anoopg@cs.washington.edu

o Dave Kong, Microsoft, davekong, davekong@cs.washington.edu

o Jason Chalecki, Microsoft, chalecki@u.washington.edu

o Jerry Lin, Microsoft, jerrylin@cs.washington.edu

o John Li, Microsoft, johnli@cs.washington.edu

We are going to tackle the problem of what is wrong with the current patent and copyright system when it is applied to the software industry and what we might do in order to fix or improve the system. We are going to start out with an overview of the history of patents to give some background on where we came from and how they were applied in other industries. At this point we will start to work on the evolution of patents and copyright and go thru their application to the software industry. This will give a good background of what the problems we’ve already seen are and we can then go thru problems that we may see in the future. We will describe the case law and legislation that has come out of this as well. (Anoop, 4-8 pages)

At this point we will make a comparison of software IP to IP in other industries to see what is different about the software industry. This will help us show why patents and copyright doesn’t work as well with software. We will then go thru the way IP is treated by different countries and regions around the world. We can go thru what solutions these governments have come up with and what has worked and what hasn’t. We can also go thru how these different policies have interacted together, the problems they have caused, and the problems that still remain unresolved. We will go thru areas such as Asia/Japan, Europe, India, Australia, Latin America, and China. (Dave, 4-8 pages)

Next we will go thru what are the main likes and dislikes of the current system. We will go in the philosophical and theoretical ideals and what problems exist even there, and then we will go thru the practical problems that we’ve seen. Next we will see what attempts there have been to change the current system have been undertaken. There is quite a bit here on current policy and we could even start looking at bills that have been proposed in congress, but haven’t been enacted. We will go into what complaints there were with each of these attempts and why they failed. In many cases we expect that the change failed because of political pressure, but there will also be many other cases where there are more basic complaints about the change. (Jason, 4-8 pages)

After looking at all these changes, different systems in place, and attempts to change the current system, we will make our own recommendation of the idea that we want. We will have to go thru what the idea should actually look like and why. What are the fundamental rights for the producers and the consumers in this system of ours? What kinds of conflicts do we see, and there will be conflicts because no system is perfect. Also we will describe the compromises that we have made in our system, and why we thought that those were the correct decisions to make. Finally we will start our conclusion. Here we will highlight the next steps that need to be taken and do a quick summary of what we went over in the rest of the paper. I expect the summary to look a lot like this one page doc. (Jerry and Jon, 5-10 pages and probably the harder ones to write)

assignments

So it sounds like everyone is okay with the areas assigned to them. I am going to do some more detailed outlining of my area over the next week, and I think it would work well to go thru this in stages like that so the paper flows from section to section. We can also revise areas as we go along this way, which should make it less work since we won't have to produce something close to a final product until we get farther along and are sure about the direction we are taking.

limiting the scope of our paper a little

So I've been doing some research and getting a pretty good outline of what I am going to write together. I actually started writing some of it already. While I was looking into our topic, I found that our topic is a little too broad. I think we should just concentrate on the patent side of things and perhaps not include the comparison to other countries in our paper. Anyone else want to comment?

Going thru part of the history of patents (haven't written the software impact stuff) I have about two pages single spaced. I figure that it will be about 3.5 if I double spaced it because of quotes.

Places w/ information

Here are the places I found information. I have primarily been using www.researchoninnovation.org.

Also, I think Anoop mentioned he found stuff at BitLaw.

Notes on research

Here are my notes on the papers. I would recommend skimming through the papers as some of them have recommendations for changes. (I will try to make the outline more Wiki friendly, if I get time.) 

· "An Empirical Look At Software Patents"
	* James Bessen, Robert M. Hunt
	* http://www.researchoninnovation.org/swpat.pdf
	○ Explores the general characteristics of software patenting over the last two decades
	○ Construct their own definition of a software patent
		§ There is no official definition
	○ Software patents acquired primarily by large manufacturing firms in industries known for strategic patenting; only 5 percent belong to software publishers.
	○ The very large increase in software patent propensity over time is not adequately explained by changes in R&D investments, employment of computer programmers, or productivity growth.
		§ Productivity-based explanations are unlikely to account for even half of the rise in software patent propensity.
	○ The residual increase in patent propensity is consistent with a sizeable rise in the cost effectiveness of software patents during the 1990s.
		§ The pattern of the residual increase is consistent with the explanation that changes in patent law made software patents significantly more cost effective.
	○ We find evidence that software patents substitute for R&D at the firm level; they are associated with lower R&D intensity.
		§ This result occurs primarily in industries known for strategic patenting and is difficult to reconcile with the traditional incentive theory of patents.
			□ It would require several coincidences:
				¨ Rising patent propensity must result from a very large increase in the productivity of R&D (beginning about 1984) that occurs in only a handful of industries (but not the software industry) and yet without regard to the hardware/software distinction.
				¨ It must also be the case that demand for R&D is price inelastic in those same industries, but not in the rest of the economy.
· "Holdup and Licensing of Cumulative Innovations with Private Information"
	* James Bessen
	* http://www.researchoninnovation.org/holdup.pdf
	○ When innovation is cumulative, early patentees can hold up later innovators.
		§ Under complete information, licensing before R&D avoids holdup. But when development costs are private information, ex ante licensing may only occur in regimes with sub-optimal patent policy.
	○ With sequential innovation, the first innovator has a claim against later innovators. Anticipating that cost, the later innovators might not perform optimal levels of R&D.
		§ Broader patent rights may increase the occurrence of this.
	○ Ex ante licensing can avoid this; however, symmetric information is needed for this to be optimal.
		§ Empirical evidence strongly suggests that there is little ex ante licensing occurring in industries with sequential innovations.
		§ It is argued that sequential innovation occurs because the second firm possesses specialized information, such as expertise in a particular technology.
			□ The first firm will not know the cost of applying this information, and the second firm will not want to reveal it so there is asymmetric information.
			□ An ex ante license might not be in the second firm's interest so holdup occurs.
		§ Some argue that broad but short patents are an alternative to ex ante licensing.
	○ With strong patents, licensing should occur ex ante; with weak patents, licensing should occur ex post.
		§ The chemical industries have high invent-around costs, patents deliver strong appropriability, and these industries also have the highest incidence of ex ante licensing.
		§ Machinery, computers and electronics industries have low inventaround costs, patents deliver low appropriability, and these industries do very little ex ante licensing.
· "Intellectual Property on the Internet: What's Wrong with Conventional Wisdom?"
	* James Bessen, Eric Maskin
	* http://www.researchoninnovation.org/iippap2.pdf
	○ Suggests that both individual publishers and society more generally may benefit from weak intellectual property enforcement and protection in such an interactive and dynamic environment
	○ The standard model equates imitation and copying.
		§ However, when innovation is sequential, imitation is more than copying; it adds important value.
		§ Though, imitation does not appear to prevent innovation in a highly dynamic environment with rapid sequential innovation.
	○ A richer economic model needs to recognize:
		§ Creative imitation differs from copying; imitators can add important value.
		§ Some environments are static, others are highly dynamic with sequential improvement. Intellectual property may work very differently in each of these environments.
		§ Some creative works have single authors, others have multiple, sequential authors.
		§ The contribution of additional authors is often unpredictable and the value of each potential contribution is often the private knowledge of that author.
	○ The best sort of intellectual property rights are strong enough to prevent direct copying and knock-off products, but weak enough to encourage the greatest amount of cross-licensing and sharing of information between competitors.
· "Patent Reform: A Mixed Blessing For the U.S. Economy?"
	* Robert Hunt
	* http://www.ftc.gov/os/comments/intelpropertycomments/patentreform.pdf
	○ There is evidence that devoting even more resources to R&D could further improve our standard of living.
	○ In many industries, making the best product or using the most advanced process may require using ideas developed by many different people. Some of those ideas will be patented, so using them requires the consent of the patent owner. While developers and users of technologies have an incentive to reach an acceptable licensing arrangement, the cost of doing so is sometimes quite high.
		§ Two notable examples of this kind of failure include the airplane and the radio in the early years of the 20th century.
	○ It is possible that making patents easier to obtain might actually reduce R&D activity, especially in high technology industries.
		§ R&D investments are related to their expected return.
		§ Patent law matters because it affects the expected return to an R&D project in two ways:
			□ it determines the probability that a given discovery can be patented
			□ it also influences the flow of profits earned over the life of a patent
		§ Adopting a weaker standard of nonobviousness, will have two opposing effects on the return to R&D.
			□ As patentability criteria are relaxed, a larger share of future innovations will qualify for patent protection. Firms enjoy the benefit of being able to protect more of their inventions from imitation.
			□ But firms also lose, because their ability to imitate their rivals’ inventions is reduced. Each firm must now compete with rivals that, over time, will receive more patents of their own. As a result, the profits earned from a given patent tend to be smaller and may not last as long.
	○ The effect of relaxing patentability criteria on R&D activity in a given industry depends on the initial rate of innovation in that industry, which, in turn, depends on the opportunities for technological improvement and the resources devoted to perfecting those improvements.
		§ In an industry that innovates slowly
			□ Competition from new technologies takes a long time to develop, so a patentable invention is likely to be highly valuable
			□ Relaxing the standard of nonobviousness increases the chances that a firm will obtain a patent that is likely to generate profits for a long time
			□ It will take a relatively long time before other firms make even the marginal discoveries that would now qualify for patent protection
				¨ The effect of this increased competition on the value of patents is likely to be small, then, because profits earned far into the future are worth a lot less to the firm than profits earned today.
			□ The effect of an increase in the probability of obtaining a patent is probably more important than the decline in the value of patents. So a weakening of patentability criteria is likely to increase the expected return to R&D, and therefore R&D activity.
		§ In an industry that innovates more rapidly
			□ New technologies are invented more frequently and, if protected from imitation, very soon compete with the existing technologies.
				¨ An invention in this industry generates less profits, over less time, than an invention of comparable significance in an industry that innovates more slowly.
				¨ Consequently, other things equal, individual patents in this industry are less valuable.
			□ A firm’s rivals are able to patent their inventions more easily, which increases their ability to become a market leader.
				¨ This further reduces the value of the firm’s own patents.
			□ The decline in patent values is likely to be more important than the increase in the probability of obtaining a patent. So a weakening of patentability criteria is more likely to reduce the expected return to R&D, and therefore R&D activity.
	○ What do we make of the surge in patenting activity in the U.S. during the 1980s and 1990s? Are inventors patenting a higher share of their discoveries? Or are they making more discoveries and patenting many of those? Or is it both?
		§ Evidence that patenting surged in the U.S., but not elsewhere, might be explained by the relaxation of patentability criteria in the 1980s. A surge of patenting in the U.S. by foreign inventors might reinforce this conclusion, especially if there was no comparable increase in patenting abroad.
		§ Conversely, a surge of patenting activity in many countries might be better explained by an increase in technological opportunities worldwide. And evidence that U.S. inventors increased their patenting abroad as much as they increased their patenting at home might be better explained by an increase in technological opportunities in the U.S.
		§ Samuel Kortum and Josh Lerner examined trends in patenting in the U.S., Europe, and Japan.
			□ European inventors increased their patenting in the U.S. in the late 1980s, but that trend was not sustained in the 1990s.
			□ Japanese inventors significantly increased their patenting activity, both at home and abroad, during the 1980s. But this is a continuation of a trend evident from the 1960s.
			□ Meanwhile, American inventors significantly increased their patenting activity in the U.S. and abroad.
			□ The authors concluded these changes in aggregate patenting activity were better explained by an increase in technological opportunities in the U.S. than by a change in the treatment of patents by U.S. courts.
		§ Kortum and Lerner also looked for evidence of a change in the value of patents during the 1980s.
			□ Kortum and Lerner cited recent evidence that patent renewal rates fell during the first half of the 1990s, which suggests a decline in the residual value of patents.
			□ This drop-off in renewal rates is consistent with the argument that making patents easier to obtain in the U.S. caused the profits earned on patents to erode more quickly.
				¨ But that is only one of many possible explanations for an apparent decline in the value of patents. Since patent renewal rates have declined in other countries, perhaps other explanations may be more important.
		§ Changes in patentability criteria could affect the expected return to R&D; evidence may be the stock market’s valuation of R&D investments.
			□ Economist Bronwyn Hall has reported that the market value of R&D investments made by about 1000 publicly traded companies increased throughout most of the 1970s, then began to decline after 1983.
				¨  The decline was especially pronounced in the electrical and computing industries, a fact Hall attributed to more rapid technological obsolescence and the competitive effects of entry by new firms.
				¨ Around 1990, the market’s valuation of R&D investments began to rise again. Hall’s findings are the result of many factors, but they provide scant support for the idea that changes in patent law increased the market value of R&D investments during the 1980s.
			□ Examined the market valuation of R&D investments made by a dozen American semiconductor companies from 1976 to 1994.
				¨ If only a firm’s own R&D investments were taken into account, there was a significant increase in the market value of those investments, but that it occurred after 1989.
					◊ This is more than five years after the significance of the changes in the patent system were widely known. While it is possible that those change explain this increase, the long delay between the alleged cause and its effect suggests that alternative explanations cannot be ruled out.
				¨ In the semiconductor industry, the R&D activity of a company’s rivals is very important.
					◊ The widespread practice of reverse-engineering suggests that firms learn a great deal from each other’s products, which are themselves the result of considerable research and development.
					◊ That suggests the possibility of a spillover — the value of a company’s own research might be affected by the research conducted by its rivals.
			□ In a 1996 study I analyzed types of effects that R&D investments might have on a firm’s market value:
				¨ Three types:
					◊ A direct effect, measured by the firm’s own R&D investments;
					◊ A competitive effect, measured by the R&D investments of its rivals;
					◊ A spillover effect, measured by the interaction of the firm’s own R&D investments with those of its rivals.
				¨ Using statistical techniques and data on a dozen American semiconductor companies, I was able to confirm that a change in the relationship between these variables and the firms’ market value did occur at some point in the 1980s.
					◊ In the early part of the decade, the R&D activities of its rivals tended to reduce a firm’s market value (the competitive effect).
						► During this period, the contribution to a firm’s market value made by its own R&D investments (the direct effect) was quite small, but this contribution was higher the more the firm’s rivals spent on R&D (a positive spillover).
						► These results can be explained in a number of ways, but they are certainly consistent with an environment in which firms were able to reverse-engineer improvements embodied in each other’s designs and incorporate them in new designs of their own.
					◊ At some point in the late 1980s or early 1990s, circumstances began to change. R&D investments made by a firm’s rivals no longer reduced its own market value (the competitive effect), and in some cases actually increased it. At the same time, a firm’s own R&D investments contributed significantly more to its market value than before. In other words, the direct effect had increased. But now there was a negative spillover: R&D investments made by its rivals reduced, rather than increased, the market value of a firm’s own R&D investments.
						► These changes are consistent with a shift from an environment of significant reverse-engineering to one relying more heavily on patent protection.
						► One interpretation of the reversal of the competitive effect is that firms shifted away from competing directly in product markets and, more often than before, were supplying state-of-the-art components for their rivals’ products.
						► One interpretation of the reversal of the spillover effect is that firms were now able to use patents to preclude rivals from developing certain technologies.
						► The overall effect of these changes was that, once the spillover effect is taken into account, the market value of R&D investments for this group of semiconductor companies during the late 1980s and early 1990s was either the same as or lower than it was in the early 1980s.
						► These results do not support the idea that granting mask rights or otherwise making patents easier to obtain raised the expected return to R&D among established firms in the U.S. semiconductor industry.
	○ The relatively small amount of empirical research that has been done so far is not favorable to the view that the recent, and impressive, increases in private R&D spending and patenting can be explained by the changes in patent law that occurred in the 1980s.
		§ A great deal more research needs to be done to reach a definitive conclusion about the effects of adopting weaker patentablity criteria.
· "Patent Thickets: Strategic Patenting of Complex Technologies"
	* James Bessen
	* http://www.researchoninnovation.org/thicket.pdf
	○ Patent race models assume that an innovator wins the only patent covering a product.
	○ When technologies are complex, this property right is defective: ownership of a product’s technology is shared, not exclusive.
		§ Many patents and many patent holders may be involved in developing a commercial product.
		§ If patent standards are low, firms build “thickets” of patents, especially incumbent firms in mature industries.
			□ When they assert these patents, innovators are forced to share rents under cross-licenses, making R&D incentives sub-optimal.
			□ Cross-licensing sharply reduces the incentive effect of lead time advantages because the winner’s profits are included in the bargaining over a cross-license and are shared in the bargaining solution.
			□ Aggressive cross-licensing involves a higher level of socially wasteful patenting activity.
		§ When lead time advantages are significant and patent standards are high, firms pursue strategies of “mutual non-aggression.”
			□ Then R&D incentives are stronger, even optimal.
	○ When innovators must negotiate with large numbers of patentholders, they may face excessive transaction costs, “holdup,” and problems of vertical monopoly.
		§ Some researchers propose that cross-licensing and patent pools may resolve these problems.
	○ When firms do not assert their patents, innovators may still realize rents because of lead time advantages.
		§ Empirical research finds that firms see lead time advantages and related advantages as strong sources of appropriability—stronger than patents, in fact, except in the pharmaceutical and chemical industries.
	○ The value of the lead time advantage is greater when firms do not assert patents and is less when firms assert patents and outcomes are determined either under a cross-license or through litigation.
		§ Some patent policies may reduce this value and consequently reduce market-based incentives to innovate.
	○ Under common conditions, an increase (decrease) in patenting standards, decreases (increases) the range over which cross-licensing occurs and increases (decreases) the range over which mutual non-aggression occurs.
	○ R&D is socially sub-optimal under cross-licensing because the innovation rents are shared, making each firm’s incentive too low.
	○ Under mutual non-aggression, a lead time advantage can provide stronger incentives and a more nearly socially optimal (or perhaps even supra-optimal) level of R&D.
	○ In a sense, patent thickets may be viewed as an instance where the private actions of firms counteract policy.
		§ If the government establishes a short patent term, firms will build portfolios of patents staggered over time to achieve a long term patent position.
		§ If the government establishes a narrow patent scope, firms will build large portfolios of many related patents to achieve a very broad patent position.
	○ When multiple firms pursue patent thicket strategies, the net result may be an equilibrium with less R&D.
		§ In effect, patents substitute for R&D as a source of competitive advantage.
	○ Low standards and complex technologies, patents serve to subsidize the losers of innovation races (paid by the winners), especially if those losers are large patent holders in mature industries.
	○ Patents may protect entrants, but thickets force entrants to develop a portfolio quickly, possibly providing a barrier to entry.
· "You Can Patent That? Are Patents on Computer Programs and Business Methods Good for the New Economy?"
	* Robert M. Hunt
	* http://www.phil.frb.org/files/br/brq101bh.pdf
	○ Examine the ratio of R&D spending to sales, which is a measure of the research intensity of an industry.
		§ A high ratio might imply there are potentially many new products or processes that are worth exploring.
		§ The ratio of R&D spending to sales for publicly traded companies in the software and data processing sector has increased from about 5 percent in the early 1980s to about 7.5 percent in recent years.
		§ Most of that increase occurred prior to the 1990s, a time when the patentability of computer programs was still uncertain.
		§ The percent increase in R&D intensity for this sector (59 percent) between 1980 and 1999 is comparable to the overall trend for publicly held companies (56 percent).
· "Patents and the Diffusion of Technical Information"
	* James Bessen
	* http://www.researchoninnovation.org/disclose.pdf
	○ Diffusion is not necessarily more likely with a patent system nor is the "market for technology" necessarily greater.
	○ The problem is that "only unconcealable inventions are patented," so patents reveal little that could not be otherwise learned. On the other hand, "concealable inventions remain concealed".
	○ Although patentable inventions might diffuse both with and without a patent system, they might diffuse more rapidly under a patent system via licensing.
	○ No licensing case: Firms use patents when they reduce or eliminate imitation. Therefore, diffusion via imitation is less in these situations than if there were no patents.
	○ Two relative virtues of the patent system for licensing:
		§ It may be relatively difficult to contract over trade secrets
			□ Verifiability
			□ Expropriation - firms will not license "blind", but revealing the info before under license puts the inventor at risk of firms using the knowledge w/o licensing it
			□ These issues can be overcome
		§ The incentives to license patents may be greater
	○ The extent of the market for licenses may actually be greater without patents.
		§ Licensing occurs where there is a credible threat of imitation. Because imitation occurs in more restricted circumstances with patents than without patents, the extent of licensing is less with patents.
	○ When firms can choose whether to protect inventions by patents or by trade secrecy, this model suggests that diffusion of the technical information embodied in inventions is not enhanced by the patent system and may well be delayed.
· "Sequential Innovation, Patents, and Imitation"
	* James Bessen, Eric Maskin
	* http://www.researchoninnovation.org/patrev.pdf
	○ If innovation is both “sequential” (each invention builds on its predecessor) and “complementary” (a diversity of innovators raises the chances of discovery), a firm’s profit may actually be enhanced by competition, and a patent system may interfere with such competition and with innovation.
	○ Imitation of a discovery may be socially desirable in a world of sequential and complementary innovation because it helps the imitator to develop further inventions. And because the imitator may have valuable ideas not available to the original discoverer, the overall pace of innovation may thereby be enhanced.
		§ Patent defenders have a counterargument:
			□ If a patent threatens to interfere with valuable innovative activity, the patent holder is likely to have the incentive to license it (thereby allowing innovation to occur).
		§ The problem with this argument is that the appropriate fee or royalty may well depend on information about the licensee’s costs and potential revenue to which the patent holder is not privy.
			□ Thus, there is a significant chance that the fee will be set too high discouraging licensing and thus invention.
	○ Although imitation reduces the firm’s current profit, it raises the probability of further innovations, which improve the firm’s future profit
		§ Either because the firm, in turn, imitates these later inventions (in the absence of patent protection)
		§ Or because it can set a higher licensing fee (when patents are possible).
	○ Model with a sequence of potential innovations each of which builds on its immediate predecessor
		§ The incentive to innovate is greater than when a single innovation
			□ The second firm has a greater incentive to conduct R&D in this model: its R&D investment raises the probability, not only of the next innovation, but of subsequent innovations, and this is advantageous to the firm, even if subsequently it merely imitates the first firm.
		§ A patent confers a hold-up right over subsequent inventions because these later discoveries make essential use of the patented innovation
			□ An issue that the patent-holder faces that did not arise in the static model is whether or not to offer the other firm a license to use the invention.
				¨ The complication, however, is that, not knowing the other firm’s R&D cost, the patent holder cannot ensure that its fee will be set to extract all surplus.
	○ Whether or not an innovating firm benefits from competition and being imitated
		§ In the static model, a firm undertaking R&D clearly loses from competition and imitation.
		§ A firm gains from facing a competitor that is free to imitate it in the dynamic model (provided that the competitor will choose to undertake R&D).
	○ Empirical evidence suggesting that the dynamic rather than the static model applies to high-tech industries
		§ For 23 major products, Gort and Klepper collected data on innovations (major and minor) and on firm entry over time.
			□ On average, each of these products experienced 19 subsequent improving innovations.
			□ When firms can enter, they can also introduce new technologies. On the other hand, when entry is restricted, the pool of firms that can introduce new technologies is also restricted. Hence, the rate of firm entry can proxy for the ability of firms to introduce complementary technologies. If our hypothesis is correct, the rate of innovation should correlate with the rate of firm entry.
				¨ The highest rates of innovation appear instead during the second and third phases, during and immediately following the period of greatest firm entry.
		§ The late 80's display a leveling off and possibly a reversal of an upward trend in research intensity over the previous decade. There does not appear to be so much as a 10% increase in R&D intensity among the firms and industries obtaining software patents. Real R&D intensity shows a clear decline in the late 80’s.
			□ There could be two sorts of offsetting changes:
				¨ Technological opportunities may have simultaneously fallen abruptly
				¨ The cost of performing R&D could have simultaneously risen sharply
			□ Both are refuted by evidence
		§ It is possible, however, that R&D spending relative to sales may understate R&D relative to output because of price effects.
			□ R&D relative to output exhibits a significant decline during the late 1980’s.
		§ Thus, the extension of patent protection to software did not generate a relative increase in R&D spending as predicted by the static model; instead, R&D spending seems to have remained roughly steady or to have declined.
	○ Patents foster innovation incentives in a static world; in a dynamic world, firms may have plenty of incentive to innovate without patents and patents may constrict complementary innovation.
		§ With patents, some socially beneficial licensing does not occur, interfering with innovation that would occur in the absence of patents.
		§ R&D investment in a regime with patent protection may be strictly lower than the social optimum

Some excerpts about possible changes

Here are some excerpts about proposals for change from the papers I read since my outlines did not go into that explicitly. The last paper shown here had the most suggestions.


Intellectual Property on the Internet: What's Wrong with Conventional Wisdom? by James Bessen and Eric Maskin

Publishers will do best by recognizing and encouraging the complementary contributions of others. Societ will do best by recognizing that subsequent authors/inventors may make important additions to original contributions. Intellectual property protections should be limited to achieve a balance that prevents direct copying but that encourages value-adding imitation.
Sometimes intellectual property policy is described as balancing the protection of incentives to create ideas against the benefit to society of disseminating those ideas. This analysis suggests that policy needs to address not only the general (and somewhat amorphous) dissemination of ideas, but also the specific practice of imitating to improve, especially in dynamic environments.


Sequential Innovation, Patents, and Imitation by James Bessen and Eric Maskin

Intellectual property appears to be an area in which results that seem secure in a static model are overturned in a dynamic setting. Imitation invariably inhibits innovation in a static world; in a dynamic world, imitators can provide benefit to both the original innovator and to society as a whole. Patents foster innovation incentives in a static world; in a dynamic world, firms may have plenty of incentive to innovate without patents and patents may constrict complementary innovation.
This suggests a cautionary note regarding intellectual property protection. The reflexive view that “stronger is always better” is incorrect; rather a balanced approach is required. The ideal patent policy limits “knock-off” imitation, but allows developers who make similar, but potentially valuable complementary contributions. In this sense, copyright protection for software programs (which has gone through its own evolution over the last decade) may have achieved a better balance than patent protection. In particular, industry participants complain that software patents have been too broad and too obvious, leading to holdup problems [USTPO]. Also in this regard, patent systems that limit patent breadth, such as the Japanese system before the late 1980’s, may offer a better balance. Thus our model suggests another, different rationale for narrow patent breadth than the recent economic literature on this subject.


You Can Patent That? Are Patents on Computer Programs and Business Methods Good for the New Economy? By Robert M. Hunt

Currently, most of the burden of identifying relevant prior art lies with the patent office. Some scholars propose adopting an opposition system - an administrative process whereby a third party can dispute a patent either just before or just after it is issued. The idea is to use the self-interest of customers or competitors to generate more information than the patent office is able or willing to produce, which could improve the quality of patents. Opposition systems have been used for many years in Europe and, until recently, Japan. But they are not universally supported because the evidence presented may be biased and third parties may have an excessive interest in contesting patents, even good ones.
But today, it is not unreasonable to ask whether, for patents in new technology fields, the courts should be more skeptical about the quality of patent examinations. In that case, we may wish to return to the previous evidentiary standard (a preponderance of the evidence) when evaluating patents on technologies unfamiliar to the patent office. It would also seem prudent for courts to be more circumspect about granting preliminary injunctions before reaching a final conclusion about a patent's validity.
One way to reduce the effect of issuing more erroneous patents is to adopt a more stringent test for nonobviousness. Under a more rigorous test, the fact that certain prior art was missed is less likely to affect the examiner's final decision. Nor is it at all clear that adopting more rigorous patentability criteria would adversely affect the incentive to innovate.
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