Mossoff-Ridley Webinar Highlights Dispute Over Economic, Societal Impact of Patent Rights

On August 10, The Hudson Institute hosted an online video webinar featuring Matt Ridley, member of the UK’s House of Lords and author of the recent book How Innovation Works (And Why It Flourishes in Freedom). The book explores a series of case studies about innovation across history in order to upend some conventional wisdom and make the argument that major innovations typically arise as a result of a series of contributions from sometimes unconnected individuals rather than top-down legislative frameworks or what Ridley calls “the myth of the heroic single inventor.” Moderating the conversation was Adam Mossoff, Professor of Law at George Mason University Antonin Scalia Law School and Chair of the Forum for Intellectual Property at the Hudson Institute. The conversation was highlighted by an intriguing and well-reasoned critique of Ridley’s book by Mossoff, who challenged some of the book’s statements on intellectual property and patents in particular.

Distributed Networks versus Governments

Matt Ridley

In discussing the case studies from How Innovation Works, Ridley counted among his favorites the story of the Wright Brothers and their work on building and operating the world’s first successful airplane. However, Ridley said that the case study which intrigued him the most was the development of mosquito nets, mesh netting impregnated with insecticides which are used to protect sleeping quarters in countries where malaria is prevalent. The mosquito net has played a major role in turning malaria from a growing global pandemic to a manageable health situation, decreasing to 57 cases per 1,000 people in at-risk populations across the globe in 2018. Ridley called the mosquito net a nice example of a cheap and low-tech innovation which has had a major impact on our world.

The story of how mosquito nets were championed by charitable groups like the Gates Foundation offered Ridley a good anecdote underscoring his narrative that governments are poor at encouraging innovation. Ridley recounted an argument he previously had with Bill Gates about the usefulness of foreign aid in which Gates said that his organization’s championing of mosquito nets proved that governmental foreign aid was useful for addressing pandemics:

I said, ‘No, you prove exactly the opposite. You prove that governments have been pouring money into foreign aid for decades and they didn’t even turn around malaria. You come along and you champion the right technology and not the wrong one and you do it in the right way and you don’t give all your money to [non-governmental organizations] in the West and you don’t give it to corrupt dictators in the developing world. You actually make sure that the money gets to the right place and does the right thing. You actually shame the world of official aid giving by showing how it should have been done.’

The fact that the stories behind some of the most important innovations in the modern world often reflect the accrual of knowledge through dispersed networks was something Ridley said he was expecting to find during the writing of his book. “I was pleasantly surprised by how often stories that seemed purely individual, when you drilled down turned out to be much more collective,” Ridley said. He pointed to the example of the introduction of dwarf varieties of wheat into India and Pakistan by American agronomist Norman Borlaug, a development credited with greatly improving food security in those countries. While Ridley didn’t want to minimize Borlaug’s accomplishments, he did point out to Mossoff that Borlaug got the idea to use dwarf wheat through conversations with other agronomists, and that such varieties had been in use in Japan by the 1920s. “It’s a lovely example of teamwork,” Ridley said. “Borlaug deserves to be a hero, but it’s important not to think that one person can do these things on their own. They have to be talking to other people, listening to other people, building on the work of other people, and allowing other people to build on their work as well.”

Mossoff Pushes Back

Later in the webinar, Mossoff expressed concerns regarding Ridley’s views in How Innovation Works about IP, especially patents. Ridley’s references to patents in the book make the case that IP actually stifles innovation by keeping innovators tied up in legal battles rather than focusing on improving their inventions or developing new ones. Mossoff argued that patents do more than just provide an incentive to innovate; traditionally, their use as a form of property right has been able to facilitate a great amount of commercial exchange serving as collateral for investment or as an asset for generating licensing revenue. Ridley countered by contending that the empirical evidence that he viewed leading to the writing of How Innovation Works supported the argument that countries increasing their IP protections don’t see a corresponding increase in innovation. He also offered the example of the corrugated iron market in Australia, which saw a large boost in the decades after certain patents in that sector expired in the 1840s. Ridley also offered recent increases in the 3D printing market after patent expirations as further support the idea that “we have gone too far in letting patents become barriers to innovation rather than encouragements to innovation.”

Mossoff’s pushback against Ridley’s views on patents seems merited given the evidence used by Ridley to draw out the conclusions in his book. A book review of Ridley’s work pointed out that the author relies on several sources that are highly controversial, including a widely debunked figure on the economic impacts of non-practicing entities (NPEs) by James Bessen and Michael Meurer. Whereas Ridley argued that patents enable an offensive type of rent-seeking that prevented people from accessing the benefit of technological advances, Mossoff expounded on the societal benefits stemming from protecting those advances as private property.

“We often speak colloquially about claiming ideas, but patents don’t protect ideas,” Mossoff said. “[They] protect a real-world tangible process or technology.” The fact that patents created entitlements to something new that previously didn’t exist creates issues for people wanting to benefit from the advance for free without compensating the original innovator, as well as the problem of defining the exact boundary of what a particular invention encompasses. Ridley and others have decried high levels of litigation stemming from new and valuable technologies, but Mossoff pointed out that similar phenomena have been seen in the real property context with a rise in litigation in the mid-19th century stemming from the creation of new property rights through passage of the Homestead Act. Further, the creation of licensing models based on patents in the 19th century was instrumental in the dissemination of technologies like the telegraph.

Ridley did say that he had previous business experiences which showed him situations where patents are necessary to business owners, but his research, coupled with his libertarian political views, have led him to believe that the necessity of patents to business owners only exists because of the way government systems are set up to make that necessity inevitable. However, as Mossoff pointed out during the webinar, there are many ways that governments can incentivize innovation outside of the issue of patents, such as prize systems or tax subsidies, but patents as a property right provide a much more robust economic asset which have been leveraged to build some of today’s biggest companies, such as the search engine algorithm patents earned during the early days of Google, which were used to attract venture capital to that firm as a startup.

Government-Issued Monopoly, or Economy-Boosting Private Property Right?

Ridley is a vocal libertarian, an ideology which typically advocates for less government regulatory control of markets. So the nature of a patent as a government-issued property right is naturally going to rankle people who are convinced that regulations of any form are bad for the market and the economy. However, whereas many libertarians see patents as the kind of government intrusion into markets that offers monopoly power and creates an unfair business environment, more informed observers of the patent system will note that patents are actually an anti-monopoly when issued to startups because they provide new market entrants with fewer resources than market incumbents with a first mover advantage. Without such protections, too many innovators today are all too aware that their innovations have been co-opted by major tech firms through efficient infringement. Libertarians have no problem with big companies making money for creating new products and entering new markets. But libertarians, especially those who adhere to the non-aggression principle, should be able to come to a common sense conclusion about the usefulness of patents given the economic benefits to the United States and the world that come from a strong rule of law that recognizes patents as property rights that small business owners can assert against the massive corporate entities trying to steal their inventions.

Ridley in a sense spoke to this reality without realizing it during the webinar when he mentioned that many Silicon Valley companies don’t find patents to be important to their business models. Readers will understand that many of these same companies are among the worst of the efficient infringement cabal. Google, Apple and many others do not make their money by innovating; they make their money by stealing technologies like targeted advertising and then using recently created legal mechanisms to invalidate the patents of their competitors, preserving billions in revenue for market incumbents while destroying competition from startups. “[These companies] seem to be able to do the most innovation by a mile and they hardly rely on patents at all,” Ridley said. Of course, those companies seem to be able to do the most innovation in part because they arguably steal inventions and then publicly paint the patent holders as “patent trolls” engaging in a type of market hold-up, when really, the patent holders are the one at the end of the gun’s barrel and the trigger is held by the tech ruling class. Further, if government interference in business interests is truly the boogeyman that Ridley believes it is, he may want to take a closer look at the impacts of the America Invents Act (AIA) and how it created uncertainties in patent law that have damaged the economic interests of startups and small R&D-focused entities.

To Ridley’s immense credit, he clearly indicated by the webinar’s end that Mossoff had raised many good points and was interested to explore more of the data behind Mossoff’s arguments. While there are many things about Ridley’s view on patents and IP that deserve critiquing, his viewpoints on innovation as a collective experience are very interesting and his thesis that distributed networks and not governments spur innovation sounds very reasonable from an economic theory standpoint.