Against Intellectual Monopoly

effort is increasing in the size of the market, and that large
and rich countries will invest a larger share of their GDP in R&D than will
small and poor countries. Putting Kanwar and Evenson's data together with
GDP data from the 1990 CIA World Fact Book, we find that a 1 percent
increase in the size of a country as measured by GDP increases the ratio of
R&D to GDP by 0.34 percent.

    It is interesting to look at the residual error that is left over after we predict
the ratio of (or the logarithm of) R&D to GDP from (the logarithm of)
GDP (see Table 8.4).
    What does the table show? The question is whether increasing the IP
protection level leads to an increase in the residual. Moving from level 0 to
1 and from level 1 to 2 this is true, but it is not true when moving from
level 2 to 3 or level 3 to 4. In other words, once you control for market
size, higher IP protection increases the ratio of R&D to GDP at the very low
levels but becomes uncorrelated with that ratio at any level of IP protection
equal to two or more in the Kanwar and Evenson scale. This reinforces the
idea that what we are seeing is primarily the effect of foreign investment.
Among poor countries with low IP protection, increases bring in more
foreign investment and raise R&D. In richer countries with high IP levels, foreign investment is not an issue, and increases in IP have little or no effect
on innovation.

    The Scherer and Weisbrod study shows that it is perhaps not too wise for
large and advanced countries to rely on strengthening patent protection to
bring in foreign investment. This may explain why when Italy introduced
pharmaceutical patents in 1979, the Italian pharmaceutical industry that
had been thriving by making generic drugs largely disappeared. This is just
one example, among the possible many, of the intellectual property miracle
not materializing.
    The Lerner study is especially notable because he examined all significant
changes in patent law in all countries over the past 150 years. His conclusion?
    Consider, for instance, policy changes that strengthen patent protection. Once
overall trends in patenting are adjusted for, the changes in patents by residents of
the country undertaking the policy change are negative, both in Great Britain and
in the country itself. Subject to the caveats noted in the conclusion this evidence
suggests that these policy changes did not spur innovation.18
    The Leger study is also worth mentioning, as it is one of the very few
concerned with agricultural patents, and the only one we are aware of that
is based on actual data. After mentioning a few (negative) studies of the
impact of patents on Latin American agricultural production, it reports the
results of a case study of Mexican maize breeding. The bottom line "shows
that stronger IPRs [Intellectual Property Rights] have had few impacts on
the development of new breeds and that few Mexican breeders used IPRs to
protect their innovations."19
    Finally, the Mann study is worth reading because it is the only attempt
we are aware of to turn around the empirical findings of Bessen. As we
extensively reported in Chapter 4, in a sequence of studies, Bessen and
collaborators show that software patents did not increase and most likely
decreased the rate of innovation in the software industry. As Bessen himself
correctly points out in an unpublished rejoinder:
    The actual empirical findings in this paper point to rather different conclusions than
those that Mann draws, namely: few software startups benefits from software patents
and patents are not widely used by software firms to obtain venture financing.
Indeed, among other things, the paper reports that 80% of venture-financed software startups had not acquired anypatents within four years of receiving financing. 0
    The remaining studies, like Lerner, find little or negative evidence that
increased patent protection lead to increased innovation:
    We find evidence that patents substitute for R&D effort at the firm level; they are
associated with lower R&D intensity.21

    The results suggest that stronger patents may have facilitated entry by firms in
niche product markets, while spawning "patent portfolio races" among capitalintensive firms.22
    It is too soon to draw any conclusion about what the effects will be of India's
upcoming introduction of product patents for pharmaceuticals.... Currently
Indian firms are quite quick to bring imitations to markets....