The Limits of Utilitarian Reasoning–The Case of Patents (archived comments below), Mises Economics Blog (Dec. 19, 2008)
It can of course be useful to point out harmful consequences of various policies, if only to engage advocates of same on their own turf. Thus in There’s No Such Thing as a Free Patent I point out that those who claim the benefits of patents outweigh the costs never seem to tally up these figures and give us the net. And indeed, whenever anyone ties to do this, they usually conclude that the patent system does more harm than good. For example, Boldrin and Levine’s Against Monopoly, Bessen & Muerer’s work, Julio Cole’s Patents and Copyrights: Do the Benefits Exceed the Costs?, and so on (see my post, What Are the Costs of the Patent System?).
And yet, there are severe drawbacks to relying exclusively on the utilitarian approach, as I explained in my Against Intellectual Property. We need to have principled, moral reasons that can cut through the fog of inconclusive utilitarian back-and-forth. Case in point is Rosemarie Ziedonis’s reply to Bessen & Muerer’s On the Apparent Failure of Patents. In her civil and reasonable reply, she argues that Bessen & Muerer provide
little basis for concluding (as the authors assert) that public firms outside the chemical and pharmaceutical industries would be “better off” if patents did not exist. Public firms benefit from the patent system in numerous ways that are not captured by Bessen and Meurer’s “net benefits” calculations, including through information revealed during the patenting process and through growth opportunities provided by startups. More generally, the authors are unable to observe the innovative productivity or financial performance of public firms in an alternative, nonpatent regime.”
What can a utilitarian say when a critic simply replies, “but there are other benefits you are not capturing”? The strongest counter, it seems to me, is to note that the burden of proof is on the proponent of a utilitarian argument favoring a state regulation, but how do utilitarians ever know if they’ve taken all costs, and all benefits, into account? That’s why a principled, property-rights argument is crucial.
A more complete excerpt of Ziedonis’s comments follows:
A second problem with Bessen and Meurer’s “better off” assertion is its implicit assumption that the private value firms reap from owning patents is equivalent to the private value those firms derive from the patent system. Here, it is important to understand what was (and was not) included in Bessen and Meurer’s statistics. While the authors’ “net benefits” calculations allowed public firms to be harmed by patents owned by outsiders through encounters of infringement lawsuits, they did not allow firms to reap benefits from the activities of others. Recall that only the value captured from a firm’s own portfolio was captured in the authors’ calculations. There are several ways in which public firms reap indirect benefits from the patent system. One is through information revealed during the patenting process (i.e., “spillovers”). In addition to enticing investment through the lure of future profits (the “reward theory” of focal attention in Bessen and Meurer’s article), the patent system also aims to foster innovation through the disclosure of information about new inventions (in detailed drawings and descriptions contained in published patent documents) that otherwise might be held secret or be more difficult for outsiders to unravel. …
Although the evidence generated from Bessen and Meurer’s analysis is alarming, it provides little basis for concluding (as the authors assert) that public firms outside the chemical and pharmaceutical industries would be “better off” if patents did not exist. Public firms benefit from the patent system in numerous ways that are not captured by Bessen and Meurer’s “net benefits” calculations, including through information revealed during the patenting process and through growth opportunities provided by startups. More generally, the authors are unable to observe the innovative productivity or financial performance of public firms in an alternative, nonpatent regime. Would opportunities to “outsource” R&D to more efficient performers or to profit from entrepreneurial-firm acquisitions be deleteriously affected? It is highly unlikely, of course, that the U.S. patent system will be abolished. Nonetheless, when assessing the current system’s performance, these indirect effects of patents are important to consider.
Comments (17)
The average cost of bringing a new drug to market is 800 million $, and is expected to reach 1.4 billion $ within 10 years. Without patents, the logic tells us that no one would put that king of money to get a new drug approved if they would not be guaranteed a monopoly over it for a period of time. But lets dig a little deeper. According to the FDA’s own numbers, the number a “me-too” drugs comprise 80% of all approved drugs on the market. For those who don’t know, a me-too drug is a drug that does the exact same thing as another, except that it’s a little bit different, just enough so that it’s not covered by the existing patents.
When a company develops a new drug, say viagra, it can generate profits of many billions of dollars. When other companies see these huge profits, they want a slice of the pie, so they invent nearly identical drugs that does the same thing, except a little differently and call it “cialis”. But here is the catch, since that new drug is slightly different, it too must be approved independently to the FDA, costing another 800 million $. Without patents, the second company could simply copy the first drug and get a slice of the profits instantly, saving society 800 million $ in R&D; costs.
When the FDA says that 80% of new drugs approved are “me-too” drugs, then what it really means is that there is a 640 millions dollar cost overrun for each new drug. The immediate effect of eliminating patent law in the pharmaceutical industry would be to reduce the cost of introducing a new drug to market down to 160 million $ from 800 million $.
As for the long term effect… well, need I mention the 50 most promising compounds that I as well as no other company are allowed to research into because the patent holders demand unreasonable royalties. These compounds simply go unstudied. Patent in the pharmaceutical sciences are probably accountable for a 10 year dip in life expectancy compared to what it could be if people had the freedom to research and market products according to their own reason and choice (as opposed to which patent the government approved or not)
Published: December 20, 2008 2:36 PM
Kinsella is against all government-granted patents, because they infringe on people’s other property rights, such as your right to create any drug you want with the chemical compounds and machinery that you own.
Published: December 20, 2008 4:25 PM
Also: Cubans have a higher life expectancy than citizens of the USA. So any benefits on massive government induced investment in “wonder drugs” would otherwise probably not occur to the same extent in a free market.
Instead in a free market the number of doctors would increase and it would be show (like in Cuba thugh under different means) that basic care and regular visits to a GP is overall far better than filling a person up with powerful drugs after the horse has already bolted.
Great article MR Kinsella.
Published: December 21, 2008 3:34 AM
Also: Cubans have a higher life expectancy than citizens of the USA. So any benefits on massive government induced investment in “wonder drugs” would otherwise probably not occur to the same extent in a free market.
Instead in a free market the number of doctors would increase and it would be show (like in Cuba thugh under different means) that basic care and regular visits to a GP is overall far better than filling a person up with powerful drugs after the horse has already bolted.
Great article Mr Kinsella.
Published: December 21, 2008 3:36 AM
Cubans have a higher life expectancy than citizens of the USA.
Can I assume the claim to higher life expectancy among Cubans is based on government statistics? We know how reliable those are.
Instead in a free market the number of doctors would increase and it would be show (like in Cuba thugh under different means) that basic care and regular visits to a GP is overall far better than filling a person up with powerful drugs…
I am not sure that the number of doctors would increase in a free market. It is possible the number of doctors would decrease as unlicensed practitioners of all flavors are allowed to advertise and compete. Medical schools would not be able to turn out large number of physicians without the massive government subsidy which now exists. Furthermore, there would be less interest in becoming a physician since average physician income would most likely drop. As a physician, I personally doubt that basic care and regular visits to a GP do anything to increase lifespan. Nutrition and lifestyle choices are probably much more important.
The elimination of patents and the FDA approval process from pharmaceuticals would not only make it easier to bring drugs to market, it would also bring a whole new class of preventative supplements to market to improve health and actually increase longevity. We have no way of knowing all the wonderful health innovations that are never developed in our system of government directed lifestyle.
Published: December 21, 2008 6:45 AM
I agree with your points, yet when you look at the numbers of smart and dedicated students who are rejected by the AMA’s supply-restricting medical schools, you have to think that there would be more doctors in a free market.
Published: December 21, 2008 12:36 PM
“Cubans have a higher life expectancy than citizens of the USA. “
Have you even seen pictures of their premier state run hospital?
I think you need to reassess your ability to assess the state of the world. I suggest you take a much more skeptical view of the world. Especially statistics coming out of communist and socialist state governments.
Published: December 21, 2008 1:15 PM
The fundamental issue is by what moral principle does anyone other than the creator of an invention have a right to any of the stream of economic benefits made possible solely as a result of that creator’s action?
Simply *assuming* or *asserting* that anyone who wishes to copy an invention has a right to do so and a right to take some portion of that stream of benefits, then opposing patents on the grounds that they “infringe on people’s other property rights“, is merely the fallacy of begging the question.
To argue against IP, you must answer that first question: what moral principle justifies granting the copier a right to any portion of the economic benefits made possible by the creator?
Published: December 21, 2008 3:02 PM
“by what moral principle does anyone other than the creator of an invention have a right to any of the stream of economic benefits made possible ”
By the principal that I came across this knowledge without fraud or coercion. On what moral grounds do you justify coercing me to not use that information for my betterment in a non fraudulent and non coercive way? Besides, most invention is incremental. Who is to say I didn’t find that ability independently? Patents assert a right to control, even if I never saw your invention.
It almost appears you’re confusing something like privacy rights with downstream control rights. If a reporter breaks into my house and finds some dirt, that may justify me suing the reporter for violating my privacy rights, but not for controlling or suing the free press all over the planet to hush the story. And if I told him, then hell I deserve it.
Also, you could make the same argument about the shoe making guilds of the dark ages. They might call that monopoly a “property right”, but in practice it is just a form of control.
Published: December 21, 2008 4:44 PM
“Kinsella is against all government-granted patents, because they infringe on people’s other property rights, such as your right to create any drug you want with the chemical compounds and machinery that you own.
The fundamental issue is by what moral principle does anyone other than the creator of an inventionhave a right to any of the stream of economic benefits made possible solely as a result of that creator’s action?”
*Not even river owners have “a right to the stream.” The metaphor is flawed on itself, to begin with.
He goes on:
“Simply *assuming* or *asserting* that anyone who wishes to copy an invention has a right to do so and a right to take some portion of that stream of benefits, then opposing patents on the grounds that they “infringe on people’s other property rights”, is merely the fallacy of begging the question.”
*Again, the “stream of benefits” is not tangible, but above all, it’s not guaranteed. It’s not an idea but marketing it successfully that generates said stream. Ergo, it’s marketing that which pays up, and not secrecy, idea hording or idea selfishness.
And finally:
“To argue against IP, you must answer that first question: what moral principle justifies granting the copier a right to any portion of the economic benefits made possible by the creator?”
None. What moral principle justifies granting the creator any economic benefits in a non-socialist society? None either. Talk about begging the question.
Published: December 22, 2008 1:10 AM
On what moral grounds do you justify coercing me to not use that information for my betterment in a non fraudulent and non coercive way?
On the moral grounds that what a man produces or creates, belongs to him and only to him. The act of creating a new design or a new formula — physically embodied in an invention, and subsequently used in every instance of that invention that is ever produced — is the act of producing a potential value; whatever value the market ultimately places on that invention morally belongs to the man who created it and thus made that value possible.
When you take possession of the economic benefits made possible by the creation — and thus keep them from the creator — you ARE employing force, in the form of your physical possession of what rightfully belongs to someone else.
The essence of your error is that you use the non-initiation of force as the standard of morality. This leads you to regard the non-initiation of force as a virtue equivalent to the virtues of rationality and productivity that are exercised by the creator. Accordingly, you believe that by not initiating the use of force, one gains the same moral right to the creation as does the man who brought it into existence.
But just as abstaining from destruction is not the equivalent of construction and will not cause a single new structure to be erected, abstaining from the initiation of force will not cause values to come into existence. Only an act of creation achieves that. To morally equate the non-initiation of force with the creator’s exercise of rationality and productivity is to equate an inaction, a nothing, a zero with the action of creating a value. Any view of morality that elevates inaction to the status of a virtue is a contradiction in terms, because it is only man’s need to act, to produce the values his survival requires, that gives rise to the need for morality.
This is why the mere inaction of not initiating force is not the moral equivalent of an act of creation and does not give the copier the right to any of the economic benefits made possible by the creator’s action. Refraining from an immoral act is not the equivalent of acting morally; refraining from stealing another man’s property does not endow one with any right to any property anywhere. Only an act of production — of which creation is an example — can create a right to property.
Published: December 22, 2008 9:00 AM
*Again, the “stream of benefits” is not tangible, but above all, it’s not guaranteed. It’s not an idea but marketing it successfully that generates said stream. Ergo, it’s marketing that which pays up, and not secrecy, idea hording or idea selfishness.
1) What’s intangible about money?
2) No, it’s not guaranteed. But what is the relevance of that to the issue of who properly owns it?
3) Without the creator’s act of creating the invention, there would be nothing to market.
Published: December 22, 2008 9:10 AM
So what? All this shows is but-for causation. You could argue the inventor’s mother owns it, by this reasoning–after all, without her reproducing “there would be nothing to market.” Clearly, this is of no relevance to the issue of property rights.
Published: December 22, 2008 11:22 AM
This is just another way of saying the innovator has a property right in others’ property and bodies, so is question-begging.
Not really,and so what if it was? Value is not a substance or ownable thing. Items are valued if and to the extent someone demonstrates this preference (or “acts to gain and/or keep it”). It’s relational. If I produce an item for sale, I’m hoping customers “value” it by paying money for it. Etc.
This is mere assertion and question-begging. This is what we are asking you to establish, not just re-state.
How spooky. How does one “take possession” of “economic benefits”? Where does one put them?
Ridiculous. If I build a device using my own body and my own property, I am not by any stretch of the imagination “using force” against someone else who thought of a similar pattern previously. What hogwash.
From my post Quotes on the Logic of Liberty:
You go on:
No. You do not NEED any kind of special right to use your own property as you see fit. We live by right, not permission. I do not need to find and justify a right to “prance-on-my-lawn-at-midnight” in order to have a right to do so. All I need is the right to my lawn, and to avoid committing aggression against others. So long as an action does not commit aggression, it is rightful. The burden is on you to show why an innovator–someone who thinks of a pattern–gains the right to control others’ already-owned scarce goods.
Values come into existence? Whatever does this mean? If I own some raw material and make a statue out of it, did a “value” “come into existence”? Where is the value located? Or did a statue come into existence, a statue which may or may not be valued by others?
It is the physical integrity of goods that property rights protect–not their value. As I noted in “Objectivist Law Prof Mossoff on Copyright; or, the Misuse of Labor, Value, and Creation Metaphors“,
You go on:
This is so Randbot it’s almost amusing. You’ve got the stock-phrases down, I’ll grant you that. But anyhoo, back to planet Earth: we are not trying “To morally equate the non-initiation of force with the creator’s exercise of rationality and productivity”. We just want you to leave us the hell alone, not use your state goons to redistribute wealth, by giving outsiders, late-comers, rights-of-control over the already-owned property of peaceful homesteaders.
Published: December 22, 2008 11:37 AM
No it doesn’t. The contractor who builds a home doesn’t own it. Nor the electrician the electricity that flows thru his wires. Just people create value in this world by the very fact that they exist, but that implies no such right to monetize it all, especially since no one is an island. It seems more often than not, the pro-patent people can dish it, but can’t take it. The build on a foundation of knowledge, experience, and understanding given to them under the implicit understanding of no right to control downstream value. But then readily violate that.
>”When you take possession of the economic benefits made possible by the creation — and thus keep them from the creator — you ARE employing force, in the form of your physical possession of what rightfully belongs to someone else.”
The essence of what you are saying is that market share is a property right. Well, it isn’t. Not for Wal-Mart’s value, not for yours. It is just an inventor using first mover status as a pretext to control and restrict who people buy from.
>”The essence of your error is that you use the non-initiation of force as the standard of morality. ”
The essence of yours is that you think first mover gives market share rights. It is really another way of saying “the better are entitled to control the lesser”. Since all people are finite, that is a very shaky foundation IMHO.
>”To morally equate the non-initiation of force with the creator’s exercise of rationality and productivity is to equate an inaction, a nothing, a zero with the action of creating a value. Any view of morality that elevates inaction to the status of a virtue ….”
Having a patent does not create value, it’s the application of invention that does. Controlling invention also does not create value. Discovering invention does. So fine, charge by the hour to do research, but don’t expect a monopoly on the output. Every other kind of contractor in the world works this way, as if invention is somehow different. Copying and imitation is as natural as natural law, but not monetizing all value.
>”Refraining from an immoral act is not the equivalent of acting morally; refraining from stealing another man’s property does not endow one with any right to any property anywhere. Only an act of production — of which creation is an example — can create a right to property. ”
But that is circular reasoning. It implicitly assumes that copying and imitating is non productive confiscation of property, then uses that as the foundation to declare it immoral.
Published: December 22, 2008 12:28 PM
1) What’s intangible about money?
A: Most of it. First of all most money transactions do not imply the physical translation of money, but accounting changes in bank books. But of course, your point is that the stream is real. That it is real doesn’t mean that it is caused or correlated according to your whims. You have to study how the market actually works, novels and fiction aside.
2) No, it’s not guaranteed. But what is the relevance of that to the issue of who properly owns it?
That the causal connection is not idea-wealth, but sales-wealth. We have ideas all the time. It’s the marketing effort gone right that generates the intangible yet real stream of income.
3) Without the creator’s act of creating the invention, there would be nothing to market.
There’s always something to market. You can collect pears, I can collect apples and by virtue of geographical differences, we both profit from trading. ¿The idea of gathering and trading should be patented too?
Reading Rand’s novels is no substitute for economic science. Cartoons have a purpose, but only a limited one.
Published: December 22, 2008 12:54 PM
I had seen similar pics before – although my comments were in fact not related to hospitals.
The Cuban example is not a direct comparison because it is an apples with pranges situation.
What is implied by my comments is that basic health checks by a general practitioner can be very beneficial.
In the USA people do not have access to a GP as readily / easily as a citizen of Cuba does.
Therefore, regular visits to a GP would most likely mean few trips to a hospital.
Prevention is better than cure I think the addage goes.
Governments filling the coffers of pharmaceutical companies to me is like any form of government spending – a recipe for disaster.
cheers
Published: January 7, 2009 9:16 AM