Patents, not boondoggles, really reward innovators


Britain’s history of patents helped the country become the powerhouse over the 19th century and the market based system helps maintain economic growth and innovation to the present day.

New research out today by free-market think tank the Adam Smith Institute shows that by being both a market mechanism and rewarding outcomes rather than intentions, patents beat the efforts of grants, tax credits and prizes in both effectiveness and value for money — all while keeping open and actually helping innovation by offering incentives in direct proportion to level that the invention or innovation services consumers' demands.

The paper stands as a challenge to both traditional libertarian thought that argue against the principle of intellectual property on grounds of principle, and state interventionist economists that call for more grant based funds and credits to researchers (often to their own benefit), by showing the system works in both principle and practice. 

Author Ben Southwood helps to back up the suggestion of the Tabarrok Curve, which shows patent protection boosting innovation by awarding firms economic rents for delivery of new products/services more than closest substitutes—but with effectiveness of this impacted by length of the patents.

Long patents, the paper suggests, only slightly increase incentive to invest but drastically slow flows of ideas into the public domain. The most costly in both the United States and the United Kingdom have been in the areas of medicines, especially the flow of specialist medicines to generics. This was seen in 2016 when Actavis UK 'evergreened' their hydrocortisone tablets with new slightly modified patents, and hiked the price over a decade from 70p a pack to over £88 a pack. 

Uncertain IP regimes, and uncertainty between IP regimes, have hindered collaboration and consumer benefit. This is especially relevant as the UK's ability to join the EU's patents union remains in question post Brexit this year.

With the UK having patents in one form or another since the 15th century they have played an important role in providing the property rights that enabled economic growth in this country to outstrip much of the world's remainder. In reform of the system, and as we leave the EU, we must be careful not to throw the baby out with the bathwater. 

For further comments or to arrange an interview, contact Matt Kilcoyne, via matt@adamsmith.org| +44 (0) 7584 778 207