INNOVATION TALK:THERE ARE many ways to measure innovation, and there are no shortage of rankings and indices that attempt to do exactly that. Innovation is seen as key to economic growth – we are all adherents of Joseph Schumpeter now – and if you want to encourage it, you must be able to measure it.
But how do we measure something as intangible as innovation? Any approach has its flaws – one of the most respected, the Global Innovation Index, published by Insead and the UN’s World Intellectual Property Organisation, relies on a vast array of inputs and outputs that throws up some idiosyncrasies, to say the least.
But the most pervasive approach, one that seems superficially logical, is in some ways the most problematic – counting patents and using that as a proxy for innovation. There’s some correlation between the number of patents issued and innovation, but you don’t need to be an intellectual property lawyer to see the problems. Patents can’t be counted like beads on an abacus, used as a convenient, but misleading, metric of innovation.
There are many reasons for this, but the most obvious of all is that the patent system is incontrovertibly screwed up. Last week, The New York Times published an investigation into the patent mess in the technology industry by Charles Duhigg and Steve Lohr, and it was impossible to read it without concluding that the patent system is grossly distorting our technological development.
“In the smartphone industry alone, according to a Stanford University analysis, as much as $20 billion was spent on patent litigation and patent purchases in the last two years – an amount equal to eight Mars rover missions,” they wrote. “Last year, for the first time, spending by Apple and Google on patent lawsuits and unusually big-dollar patent purchases exceeded spending on research and development of new products, according to public filings.”
Admittedly, as British journalist Ian Betteridge made clear, the 2011 figures are skewed by Apple’s investment in the Nortel patent portfolio, to the tune of $2.6 billion, and Google’s gargantuan acquisition of Motorola for an absurdly inflated $12.5 billion.
But the astonishing size of those outlays are indicative of where the patent system has taken us. It is impossible to develop products or innovate without entering into an escalating patent arms race, one that resembles Cold War-era mutually assured destruction more than protecting intellectual property. It need hardly be pointed out that such a scenario acts as a Himalayan-sized barrier to entry for new companies.
A patent system that not only rewards frivolous and obvious applications, but positively demands that companies file as many frivolous and obvious patent applications as possible, causes lasting harm to actual, real-world innovation.
The incentives that the patent system is supposed to engender have become badly misaligned – rather than offering protection for innovators, the system effectively offers market monopolies for large firms who have the means to acquire large patent portfolios, whether through application or purchase.
But in any case, even if the system wasn’t beyond broken, there is another reason we should be sceptical of the use of patents as a metric of innovation. According to a widely cited new paper from Michele Boldrin and David K Levine published by the St Louis Federal Reserve, patents don’t even do the job they’re supposed to do.
“There is no empirical evidence that serve to increase innovation and productivity, unless the latter is identified with the number of patents awarded – which, as evidence shows, has no correlation with measured productivity,” they write. “This is at the root of the ‘patent puzzle’: in spite of the enormous increase in the number of patents and in the strength of their legal protection we have neither seen a dramatic acceleration in the rate of technological progress nor a major increase in the levels of RD expenditure.”
But if patents don’t even work, what are we supposed to do with the system? Boldrin and Levine’s answer is straightforward. “The best solution is to abolish patents entirely through strong constitutional measures and to find other legislative instruments, less open to lobbying and rent-seeking, to foster innovation whenever there is clear evidence that laissez-faire under-supplies it.”
This sounds drastic, and many would fear that we would be replacing one advantage held by large firms (the monopoly granted by their patent) for another one (the ability to steal good ideas without compensating the actual innovators). But Boldrin and Levine urge us to see patents not as some form of property but as a trade restriction, and all trade restrictions represent drags on economic activity and, yes, innovation.
In light of this, it’s easy to see the danger of substituting patent counts for innovation. Encouraging innovation requires more than a patent system, and counting innovation requires a lot more than totting up the number of patents issued. Trying new things and encouraging fresh approaches, and rewarding people who effectively do that, isn’t something that is easily quantified, but it is something that needs to be actively embraced.
