The article summarizes the alleged benefits of patents as: a) They improve productivity (I'm assuming this is somehow an Economic encapsulation of the benefit

The article summarizes the alleged benefits of patents as: a) They improve productivity (I'm assuming this is somehow an Economic encapsulation of the benefit of technological progress, although AFAIK technological progress is essentially a Big Problem for economic analysis, and one of those things that Economists wave off as a pathological one-off event that ruins their assumptions, so I'm guessing it's A-OK for Economists to approximate technological progress -- something they can't really cope with -- as simply output / production cost). b) They are an alternative to trade secrets, which is dismissed in a single paragraph with the argument that you'll only patent something you can't protect for longer with trade secrets (because, as a typical economic actor you are omniscient and can perfectly predict how long you'll be able to protect something with a patent vs. secrecy). The follow-up paragraph says this (emphasis mine): > A more subtle point is that secrecy may bias the type of inventive activity away from innovations that are not easily kept secret to those that can be, viceversa for patents. There is historical evidence from Moser [2004, 2005] in this direction. In 19th Century expositions of inventions, while countries without patent systems had overall rates of innovation similar to those with a patent system, they did specialize in innovations which were more easily kept secret. How strong this bias would be if no countries had patent systems – that is, whether it is true that patents encourage innovations that would not otherwise be made, or if they just shift the location of innovation from country to country – is not known. Oops. So this argument appears to be well-founded, and we don't know how big the effect is. Never mind, moving right along... > A good case in point is that of the Wright brothers, who made a modest improvement in existing flight technology which they kept secret until they could lock it down on patents, then used their patents both to monopolize the U.S. market and to prevent innovation for nearly 20 years. Yes, there was no innovation in flight technology between 1903 and 1923. > The modern and highly successful open source software movement is a more contemporary example of how collaboration and exchange of ideas thrives absent intellectual property. This is where they lose me. OK they lost me a while back. Where is the great open source project which is so awesome everyone is imitating it? Open Source is great at commodifying innovations produced by others. We've got imitation Windows UI, imitation Mac UI, imitation iOS, imitation UNIX, imitation Microsoft Office, imitation Photoshop... > On the other side of the coin, the rationale for patent systems is weak. In most industries the first mover advantage and the competitive rents it induces are substantial without patents. Again: the smart- phone industry – laden as it is with patent litigation – is a case in point. So, do they think Apple's first mover advantage would have been worth much if competitors had simply cloned everything it did? It was the delicate dance of ripping off Apple's ideas without crossing the line that created at least of the first mover advantage in this case. I could go on and on -- the authors certainly do. > In the case of patents, and particularly pharmaceutical patents, the situation is even more severe. We have made mention of the loss of human life due to the pricing of AIDS drugs. Right, so kudos to the patent system for giving investors a reason to invest money and attention span to creating AIDS drugs, but once they're created they should sell them at break-even? Oh wait, no. No kudos to the patent system for the former -- they were inevitable. People like spending their money making stuff. It happens. > A simple model helps to focus these thoughts. We suppose that there are two firms i = 1,2 who must choose between innovating (I) and not innovating (N). We have in mind here the creation of a new product, so that the choice to innovate is paramount to entering the market – a firm that does not innovate is assumed to have no product to sell. Maybe if we do some pretend math it will make our thinking seem more rigorous. As something of a failed mathematician I like counter-examples. In this universe these guys are basing their entire theory on, the entire market for laundry soap does not exist. It's just magical thinking.