Are patents worth it? The NY Times article furore.
The recent article – ‘A Patent Is Worth Having, Right? Well, Maybe Not‘ (New York Times) has created a furore in the IP world.
It reports the findings of two Economics / Law professors (James Bessen and Michael J. Meurer) into the economics of patents. In essence, they estimate:
- $8.4 billion in global profits came to publicly traded US companies from patents in 1997, rising to $9.3 billion in 1999;
- two thirds of these profits went to chemical and pharmaceutical companies;
- domestic US litigation costs (presumably patent litigation) in 1999 were $16 billion;
- US patent litigation has increased from 2,318 new cases in 1999 to 2,830 new cases in 2006 (down from 3,075 in 2005)
The professors make an exception for pharmaceuticals, where they concede that patents are worthwhile.
Some thoughts on this:
- The professors should be congratulated for having a shot at this difficult area.
- Their data is at least 8 years out of date.
- They seem to have greatly underestimated profits from patented technology. I’m struggling to see how this data could possibly
include blockbuster drugs, which themselves can be worth billions in
the US alone. (Joff Wild estimated the combined figure for US sales in 1999 to be $30 billion.)
you add up the annual US sales for each of the products currently the
subject of Paragraph IV litigation in the US, you will get close to
$100 billion. (See for example the Orange Book Blog’s Hatch Waxman
Tracker – a quick calculation gives $84.5 billion in annual sales.)
These are drugs that are manifestly still covered by patent – that’s
why they are being litigated.
- $84.5 billion in 2007 terms
must have been well more than $9.3 billion in 1999 – and that’s only
the US market and for pharmaceuticals. (In the study, the professors
separate out pharmaceuticals from other technology, but still the
maximum global profit in 1992 from pharmaceutical patents is only just
over $12 billion. This again seems quite low.)
- The US is by far the most expensive jurisdiction in which to litigate a patent – (see my article ‘Value for money in global patent litigation‘
– actually the article underestimates the cost of litigation in the
US). It is much cheaper and faster to enforce patents in (many) other
countries. So, even if the professors are right about the US – this is by no means the end of the story.
- Companies such as Google (worth $170 billion?) are bullt on patents (and of course, trade marks) – how does that get factored in?
We’re all certainly looking forward to the day when the professors reveal their data and analysis so that people can objectively assess it. (Most interesting will be the definition of ‘profit’.)
The professor’s materials: