31 March 2013

The Growth Profession of ‘IP Economist’

Economics The Managing IP blog reported this week on comments made by Professor Sir Robin Jacob in his speech inaugurating the Sir Hugh Laddies Chair in IP Law at University College London.  In particular, Managing IP blogger James Nurton took Sir Robin to task for his criticisms of the increasing role being played by economists in IP policy.

I recently had the privilege of hearing Sir Robin speak at the University of Melbourne, on the topic of 'Patents – is Europe making a mess of things?'  In that talk, he also touched on what he sees as the inappropriate, unnecessary and potentially damaging influence of economists over IP policy in various jurisdictions.

I have to say that I am inclined to similar views.  We are seeing a corresponding rise of economists to positions of influence within the Australian IP system.

A New Job at IP Australia

Last year, IP Australia advertised a new position of ‘Chief Economist’.  According to the position description, the role of the successful candidate would be to:
  1. Provide empirical input to high level policy discussions on the economic impact of IP rights and optimum policy settings for the Australian economy.
  2. Devise and conduct or direct new economic projects aimed at improving the evidence base for IP Australia’s strategies and policy directions.
  3. Raise awareness of IP economics to inform wider policy debates and efforts to improve the IP system.
IP Australia was seeking a person with ‘a proven ability to communicate economic ideas and technical subject matter to a non-specialist audience, including government officials, IP professionals and the general public.’  I note that if IP professionals are considered ‘non-specialist’ in economics, then we should also be entitled to assume that an economist – particularly one willing to work on a public service pay scale – is quite likely to be similarly non-specialist in IP. 

The Challenge of IP Rights for Economists

In my opinion, any kind of meaningful analysis of the economic impact of sophisticated IP rights, such as patents, requires a deep understanding of how such rights operate, how they are obtained, how (and why) they are enforced, how (and in what circumstances) they influence the decision-making of operating companies (as both rights-holders and potential infringes), the time and costs involved in securing the rights, the way in which commercial negotiations (such as over licence agreements) operate, and so on. 

IP professionals deal with clients engaged in these activities every day, whereas bureaucrats and economists within government departments rarely have any direct experience of what happens ‘at the coalface’, as it were.  A particular blind spot in all policy-making and analysis is the common, and usually confidential, processes of negotiation which take place after a rights-owner identifies a potential infringement and sends a letter of demand, especially in cases which do not end in public litigation.  If these cases were a small minority, this might not be a problem.  However, negotiated settlements are, in my experience, by far the most common outcome of any assertion of IP rights.

Evidence-Gathering in Economic Studies

Attempts to gather evidence relating to private IP assertion and settlement have generally been of dubious value.  The problem here is primarily that of selection bias.  Since settlement terms are generally confidential, and the confidentiality usually contractually enforced, only a limited group of participants are willing and able to provide any details to researchers.  Identifying and contacting such participants is itself problematic, and involves yet another level of selection bias.

Despite such systematic problems with accuracy and reliability, efforts along these lines have lately proven highly influential, largely due to the current spotlight on the effectiveness of the patent system resulting from some high-profile litigation, and the activities of a few bad actors typically dubbed 'patent trolls'.

The most egregious recent example of this kind of notorious study is the work of Boston University researchers James Besson and Michael Meurer, entitled The Direct Costs from NPE Disputes, which famously concluded that patent trolls cost the US economy US$29 billion in 2011.  Although Besson and Meurer are located within the School of Law, only career-academic Meurer has formal legal qualifications (a JD from the University of Minnesota).  Besson had early-career experience in software technology and innovation, but has worked principally as an academic since around 1997. 

Neither Besson nor Meurer has any experience working in private legal practice, and in both cases their highest formal qualifications, and principal research interests, have been in (you guessed it) economics.

Despite amateur criticism on this blog and on the Gametime IP blog, along with more credible criticism from David L Schwartz of the Chicago-Kent College of Law and Jay P Kesan of the University of Illinois College of Law, Besson and Meurer's deeply flawed study continues to be widely cited and used as the basis for further proposals to 'reform' patent law.

Recent examples of uncritical citation of the headline result of the Besson and Meurer study, and its impact on policy and lawmaking, include:
  1. Julie Samuels, staff attorney and the Mark Cuban Chair to Eliminate Stupid Patents at the Electronic Frontier Foundation, writing for Politico;
  2. US Representative Pete DeFazio, in introducing – and justifying – the Saving High-tech Innovators from Egregious Legal Disputes (SHIELD) Act to Congress; and
  3. Ed Black, writing for Forbes.
More critical analysis of the issue is still present, but remains confined to a few lone voices, such as that of Adam Mossoff, at the George Mason University's Center for the Protection of Intellectual Property (CPIP), in a recent piece entitled The SHIELD Act: When Bad Economic Studies Make Bad Laws.

Regulatory Interference in the IP Market

Meanwhile, the Eurpoean Commission currently has open investigations of both Samsung and Motorola Mobility (now owned by Google) regarding allegations of anticompetitive conduct in relation to their use of standards-essential patents (SEPs) in litgation, while the US Department of Justice Antitrust Division is reportedly investigating Samsung.  The Division's Deputy Assistant Attorney General Renata B. Hesse has also recently confirmed its general concern about the assertion of SEPs.

These concerns relate particularly to the use of patents in the mobile communications technology space.  And yet, as Sir Robin Jacob has rightly pointed out, it is difficult to identify exactly what cause there is for such concerns.  Certainly there is currently a relatively high level of prominent litigation being conducted among competitors such as Apple, Samsung, Motorola/Google, HTC, Nokia and others, however these companies can all well afford to use the courts if that is their chosen strategy, and there is absolutely no evidence to suggest that any of this is having any significant impact on innovation, competition, or consumer choice.  To quote the Managing IP blog article with which I opened this post:

As [Sir Robin] Jacob reasonably said, it’s hard to think of an industry where innovation has been more astonishing and rapid than mobile telecoms, where fierce competition between companies has led to many new, improved products and lower costs. Patents and other IP rights may be part of the reason for that.

Why Should We Listen to Economists?

I would have thought that these would be difficult times for professional economists.  After all, as a group these were the people who developed the theories and models, and provided the advice and policy inputs, that created the international mechanisms which led to the GFC – a monumental disaster which few of those same people saw coming, despite its being so clearly inevitable in hindsight.  Some caution and scepticism as to the value of economic theorising must surely be in order?

But, apparently not.  Whether or not the IP system requires more economists to investigate and influence it, that is what it is getting, as IP Offices across the world employ their own in-house economists to provide policy input.  These days, if you are an IP Office without an economist – or, better yet, a whole department – you cannot possible claim ‘best practice’!

The Role of IP Australia’s Chief Economist

IP Australia has not, to date, been very forthcoming with details of its new Chief Economist role, but a bit of searching on LinkedIn provides some information.

As of November 2012, IP Australia's Chief Economist is Benjamin Mitra-Kahn.  Dr Mitra-Kahn was formerly the UK Intellectual Property Office's economic advisor, where (in his own words) he covered ‘areas as diverse as the EU patent, patent funds, thickets, backlogs, as well as business performance and IP rights.’
 
Dr Mitra-Kahn has not one, but two PhDs: one on ‘Redefining the Economy: A history of national accounting and economics’ from City University; and the other on ‘Development and Empirical modelling: CGE models and gender inequality’ from New School University.  He has lectured at City University, primarily on national accounting, growth, development, history of thought and financial institutions.

His main area of interest in relation to IP appears to be copyright. 

Dr Mitra-Kahn’s LinkedIn profile says of his new role as Chief Economist at IP Australia that he is ‘building a team to provide evidence-based policy advice on Intellectual Property.’  The phrase ‘evidence-based’ has become something of a mantra, yet (again quoting the Managing IP blog article), Sir Robin Jacob has noted that governments then:

… press ahead with policies on the basis of little or no evidence anyway. Regrettably, that’s true. As we look around the world at political debates over issues such as the EU unitary patent, the Shield Act in the US, FRAND, compulsory licensing, copyright reform and enforcement – many of which are already before senior lawmakers – feelings run high and are often based on rhetoric more than evidence.

Of course, if the alleged 'evidence' is as dubious as that employed in Besson and Meurer's study, it would be just as well if policy-makers ignored it altogether!

As for the team-building aspect of Dr Mitra-Kahn's role, it appears that IP Australia already has a Deputy Chief Economist, in Christine McDaniel.  Ms McDaniel's public LinkedIn profile page is less revealing about her role, however she lists her past roles as being at the Australian Productivity Commission, the US International Trade Commission, and Georgetown University.  She was educated at the University of Colorado at Boulder.

IP Australia's Organisational Chart [PDF] places the Office of the Chief Economist within its Business Development and Strategy Group.

Other Economists in the Ranks

IP Australia is not the only IP-related government entity which has taken on economists.  The current constitution of the Advisory Council on Intellectual Property (ACIP) now comprises two economists (out of nine members): the Chair, health economist Professor Jim Butler; and Professor Beth Webster, economist and Director of the Intellectual Property Research Institute of Australia (IPRIA).

Whether there are now enough economists influencing Australia's IP policy directions, or if there are more to come, remains to be seen.

I would be interested in other views on the role of economists within national and international IP organisations.  Please feel free to share your opinions and/or experiences in the comments below.

9 comments:

Tyrone Berger said...

Hi Mark
I read your comments this morning with great interest. As you know, I'm currently completing my PhD on Australian patent law, and are employed by the IPRIA, Melbourne Law School. Respectfully, I must disagree with some of your concerns. At first, I thought that your comments were directed towards 'in-house' economists working for IP Australia. If that was the sole purpose of your blog post, I hope those mentioned will have a right of reply in due course. But I suspect your comments were also directed at so-called IP economists more broadly. It's an unfortunate term, granted, but if you also mean by association IP academics whose background are in economics, then shame on you. Some of Australia's finest IP scholars, including Prof Beth Webster, are among them. And you only need to visit the 'Publications' section of IPRIA's website to view the vast amount of IP scholarship that has been produced in our own home town. As a recognised IP commentator, you should be the first to acknowledge the substantial contribution by this group has made to international IP scholarship. At the end of the day, we all bring our strengths (and weaknesses) to the discussion, which should not simply be dismissed by a few internet searches.
Regards, Tyrone

Mark Summerfield said...

Thanks for your comment, Tyrone.

However, you seem to have read into my article a far more sweeping criticism than is actually present. I am certainly not saying there is no place for scholarship in the area of economics and IP, nor I am saying that all such scholarship is deserving of the level of criticism that I have levelled against Besson and Meurer. I did not even mention any of IPRIA's output, much less criticise it.

I am, however, concerned that economics is becoming the primary lens through which the IP system is scrutinised. People - especially decision-makers like beaurocrats and politicians - love 'hard' facts. I believe that at least part of the reason that Besson and Meurer's study has been so influential is because it popped out a single startling number: $29 billion. It is such a no-brainer that this is 'bad', barely anyone has bothered to ask if it is true, or even if it remotely makes sense. After all, if the US economy was being drained of $29 billion every year, by just one small segment of economic activity, you would think someone would have noticed by now, even without a study.

And so the US has the proposed SHIELD Act.

The reality is far more complex, and far less easily reduced to numbers. Those of us who work with IP-generating businesses all the time see a system that is generally working, despite the efforts of a few bad actors. Yet we observe some economists, in academia, in regulatory bodies, and in policy-making positions, diligently working to demonstrate that the opposite is true. Even this would not be a problem, if it was not having a disproportionate influence on law, regulation and policy. Please explain to me why the European Commission is investigating alleged anticompetitive conduct of patent holders, when it is plain for anyone to see that competition in the relevant industy is rife, with consumers spoilt for choice of devices with ever-tumbling price tags?

In fact, they are investigating a non-problem, without even giving the courts a chance to resolve the existing disputes and/or to make their own determinations on how FRAND terms should be enforced, or what remedies should be available for infringement of SEPs.

I am not the only one who is thinking along these lines. See also, for example, this article on the IP Finance blog http://ipfinance.blogspot.co.uk/2013/03/scaremongering-about-seps.html and Gene Quinn's take on a related issue on his IP Watchdog blog here http://www.ipwatchdog.com/2013/03/07/mark-cuban-is-an-idiot-patents-do-not-impede-innovation/id=36851/

I agree with Sir Robin Jacob that there is 'a very real need for a study on the limits of what economics can tell us about IP', particularly since the unchallenged assumption seems to be that it can tell us almost everything.

I think this is wrong. If IP Offices are going to have economists on staff, then I think they should also have social scientists (to provide input on ethical and societal impacts of the IP system) and scientists in various disciplines (to independently evaluate and advise on actual levels of innovation reflected in new applications/patents), to name just two professions which might have at least as much to tell us as economists.

So it is not economic scholarship per se that bothers me, it is the growing dominance of the discipline to the effective exclusion of other disciplines. Even good scholarship is bad for IP if it is not appropriately balanced by other perspectives.

Oh, and by the way - this is my blog, where I am free to express my opinions as I see fit. Unlike some bloggers, I welcome dissenting viewpoints. But I do not appreciate being told that my views are shameful! They are, in fact, quite carefully considered.

Mark

arachne said...

The governance of intellectual property is in desperate need of honest and quality analysis - beating up on the economist bogeyman is neither. I agree with you in that bad analysis should be criticised, but to suggest that all economic analysis is necessarily wrong on the basis of a few examples of bad economic analysis is fallacious reasoning.


Analysis of IP through the prism of economics (or whatever name you wish to give to quantitative analysis) is essential since IP is a tool used to manipulate the economy. Other forms of analysis of IP are clearly also important and should be seen as complementary rather than adversarial.



What needs to be avoided is complacency, faith, and relying too heavily upon the opinion of the insiders (since the insiders have clear bias in how the IP system should operate).

Mark Summerfield said...

Thanks for your comment. It is good to see this topic generating some thoughtful discussion.

I am not suggesting that economic analysis of the IP system has no place, and I agree completely that there should be a range of different complementary approaches to analysis of the operation of the IP system. My concern is with the ascendency of the role of 'IP economist', to the apparent detriment of other forms of analysis, and with the tendency of quantitative analysis to take hold simply because it is quantitative!

Nowhere in this article do I say that 'all economic analysis is necessarily wrong'. I am highlighting two points: first, that popular opinion, policy directions and lawmaking are being directly influenced by economic studies that are clearly in need of further critical evaluation; and second that positions of substantial influence within the IP system are being created for economists despite a lack of any clear understanding of the role of economic analysis in these organisations. Notably, as far as I am aware, no similar positions are being created for other types of analyst.

It is quite likely that these 'embedded economists' will produce analysis that supports the policy objectives of their employers, and is therefore generally pro-IP. We will still need some basis to understand how reliable the analysis is, and what it all really means.

IP rights are, and always have been, only indirectly linked to economic outcomes. In my opinion, providing incentives for companies to invest in innovation is a worthwhile thing to do, even if it cannot be shown to lead to superior competition, or 'economically efficient' outcomes, in the shorter term. Innovation (by which I mean the entire process of research, invention and commercialisation) plays a role in the long-term competitiveness and prosperity of a nation. How effectively this occurs also involves an understanding of, e.g., the culture of entrepreneurism, and how this is effected by other areas of innovation policy. Too much emphasis on economic analysis alone will fail to provide us with useful information about this bigger picture.

Mark

Doug Calhoun said...

A very good starting point for any study of the economics of patents is the 1958 report of Prof Fritz Machlup to the US Senate judiciary committee:

http://www.mises.org/etexts/patentsystem.pdf

Machlup was agnostic as to the worth of the patent system, but was pretty scathing about the originality of any theories of the economic effects of patents – usually based on assertion rather than evidence. He cited swings in favour and against patents in writings from 1750 through to 1958. His conclusion was that the most important reason for their existence is to promote investment in innovation. They slow down the diffusion of innovation until the original investor has recovered a profit adequate to induce the original investment. But because patents are rooted in that contradiction there can be no ideally beneficial patent system – only one providing a net beneficial result.

He recommended that “a team of well-trained economic researchers
and analysts should be able to obtain enough information to reach competent conclusions on questions of patent reform.”

The economic analysis behind the Patents Bill in New Zealand can be found in paragraphs 1 to 21 of the initial advice the Ministry of Economic Development gave to the Commerce Committee in 2009:

http://www.parliament.nz/en-NZ/PB/SC/Documents/Advice/d/3/4/49SCCO_ADV_00DBHOH_BILL8651_1_A21721-Initial-briefing.htm

In summary, the MED noted that around 90% of patents granted by IPONZ were to non-resident owners; the benefits of these patents
might flow overseas; therefore New Zealand should make it as difficult as possible to get patents and open every opportunity to invalidate them – within our international obligations. And that policy is very
evident in the bill. The only evidence in support of the policy is the percentage of patent granted to foreigners.

What is lacking is a whole of government approach looking at policies that promote innovation, including the role of patents in promoting investment in innovation. An IP economist working in an IP silo without regard for the rest of the innovation economy is not a recipe for growing innovation - which is what I read into your post.

For more on this topic in New Zealand you might want to read an opinion piece I wrote (at pages 47 to 51):


http://www.scientists.org.nz/files/journal/2012-69/NZSR_69-2.pdf

It remains to be seen if economists trained in other areas of economics can do a better whole of economy job at patent policy than the (non-economist) policy advisors behind the Patents Bill on the east side of the Tasman.

arachne said...

http://en.wikipedia.org/wiki/If-by-whiskey

Tony Healy said...

Mark, well done for raising this. I share your concerns. Economics as a discipline has been particularly skilful at promoting the idea that economists as a profession are the experts in all areas of economics when, in fact, they're not. There are many modern areas of the economy where economists lack sophisticated understanding and essentially function as opinionated statisticians.



Innovation, software and IP are core examples.



Economists might produce a lot of "scholarship," but that doesn't mean it's any good. In fact, that argument is a classic illustration of the problem.

Mark Summerfield said...

Wow! Thanks Doug - we can always count on you for some great historical, and international, perspective.

I look forward to reading the references you have provided.

Cheers,

Mark

Mark Summerfield said...

http://en.wikipedia.org/wiki/Ad_hominem
http://en.wikipedia.org/wiki/Tu_quoque

Two can play at that game. But it's an unproductive waste of everyone's time, so let's stop it right now.

Did you have something further to contribute on the topic of whether or not economists are gaining excessive influence over IP policy?

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