Among a number of projects, including production of the annual Australian Intellectual Property Report, the Office of the Chief Economist has developed the IP Government Open Data resource (a.k.a. the IPGOD) which was used to assess the Economic Impact of Innovation Patents. That study, in particular, is having a significant policy impact, with both the (now defunct) Advisory Council on Intellectual Property (ACIP) and the Productivity Commission subsequently recommending that the innovation patent system be abolished (see ACIP Says ‘Abolish Innovation Patents’ Based on IP Australia Report and Australian Productivity Commission Releases Draft Report on Intellectual Property Arrangements).
In this context, I was very interested to have the opportunity a short while ago to sit down and have an on-the-record conversation with the Chief Economist himself, Dr Benjamin Mitra-Kahn. He and I approach the IP system from quite different perspectives – whereas I work at the ‘coal face’ (as it were), largely focussed on what my clients hope to achieve through their engagement with the system, Ben’s interest is in obtaining and analysing the data that will enable his team (and the rest of us) to better understand the IP system as a whole, and the role it plays in the economy.
I immediately liked Ben and enjoyed our discussion immensely. Over the next few weeks I will be bringing it to you in instalments, and I hope you will find it as interesting as I did. In this first part, we talk about how Ben got into the economics of IP, the process of bringing together the annual IP Reports, and a bit about the role of economics in shaping IP policy.
Part I: The Economics of IP, Policy, and All ThatMark Summerfield: How did you get involved in intellectual property? Was it an interest of yours, or happenstance?
Ben Mitra-Kahn: It was a bit of both. I applied for a job with the UK IP Office. I was an economist and they were setting up an economics function. I had done some work on intellectual property because my previous degree was in development economics. Development economics did not substantially cover IP but there is a growing field around IP in developing countries. As I went to the job interview in the UK there was a day worth of testing, and interviews and whatnot, and afterwards I was asked to come into the UK IP Office the following week for a chat and the gentleman who was setting up the office, Tony Clayton, asked me, ‘What do you know about IP?’
So I told him that I know the theory but I don’t know that there is any empirical evidence around it. I think there’s some pretty interesting stuff but I don’t think we know anything. I’d like to get into it and try and work out what businesses or the companies actually do, and what the actual effects are at the micro-level. At this point my brain said, ‘look it’s 8:30 in the morning you should probably stop talking yourself out a job now’, but Tony looked at me and went ‘That’s exactly what I want to find out!’
So, that was really what led to it. I had three years in the UK IP Office and now I am here, so that was where I came from. And IP is one of those areas where there’s a lot of green field. There’s a lot of stuff to question, a lot of stuff to answer, and a lot of really valuable and important things that I don’t think people in Australia, or anywhere, know yet. Things we think we know, and things we definitely know and there’s a lot stuff we go hmm… that should work that way.
MS: It’s obviously been something of a trend in recent years for IP offices everywhere, or at least in some major countries to incorporate an economic function, economic analysis, whatever it is. From your perspective how has that come about? Did someone start it off, and everybody followed suit, or is something in the system or government? What is it do you think?
BMK: I genuinely think the main reason is that the importance of IP and the importance of IP rights has become so central to economic policy-making that the arguments being had are both legal and economic. And the IP offices caught up to that in the mid-2000s. I think that if we were having this discussion 20 years ago, we would be having a discussion about large industrial players and copyright stakeholders. We didn’t have – and particularly in the UK it was copyright driving all this debate – consumers who, on a daily basis, engaged with copyrighted technology, patented technology…
So these stakeholders felt that they were producing IP but they were not getting things back for it. Or they felt there was some conflict between what they thought the law should do and what they were doing. And that, again, I think you can ignore, up until the point where it becomes almost endemic.
Today all the technology we use is rich in IP and IP Rights – because of the organisation of the market, because of imports and exports – this has become such a big part of the consumer life that the questions start being asked in an economic manner. I also think stakeholders began pushing governments, particularly in the UK, with economic arguments, on top of the legal arguments. So I think IP Offices felt – and somewhat naturally to be honest, or organically – that we need the capacity to respond to this or at least engage with it.
So it’s very much on the engagement side that people have said, okay we need some economists that can hopefully talk to people and who won’t sit in the corner and do silly things… which is hard – economists like sitting in the corner and doing maths! I think that’s where it’s come from. And I think the IP Office thought it adds another string to their bow in terms of what they can talk about, and how they can talk about IP. But it is just one string to a very multifaceted bow.
In the Australian case, the job description when I was hired was very much around wanting a more fact-based debate about IP in Australia. It’s a good debate, a good public debate – some of it is polarised – but we need to be able to talk to the facts and agree on the facts. And that was very much the driver, so that the early work the economists put in at IP Australia was the annual Australian IP Report: Here are the application numbers. Here are the grant numbers. Here is how they’re split up. And it’s very much a matter of reaching a point at which we all agree that these are the facts, and then where we go from that is a very different question. That was much of this job description to be honest.
MS: Since you’ve mentioned the IP Report, one thing that I’ve noticed about those annual reports is that in each case one of the things you do is look at a particular industry sector and provide some specific information about that. And I guess the thing that I wondered about that was, given that you can’t cover everything, how do you make that choice? Is there some process by which you pick an industry sector?
BMK: So it’s government – there’s always a process! The process for the IP Report tends to be more along the lines of where are the government’s priorities and interests and where has work that IP Australia has been asked to do in the last year been. So, I think in the previous years we had done some work on the food industry, packaging and so forth. So they [The Department of Industry] commissioned IP Australia’s Analytics Hub to do a report on patenting in the food industry. And so it’s material that we’ve been working on, and I said look, this is interesting, we think there’s something here. Do you think this information is valuable to you? I appreciate that not everyone is as excited about food packaging as I am, but that’s very much where it comes from.
So it’s a question of what have we been asked to do, unless there are particular things that excite the general community. So, for example, one year we had two pages on Raising the Bar – what happened when we introduced it, and what were the stats around it. But again, it’s short, it’s meant to be a review of the highlights of the year, in terms of the data we have. Here’s a quick analysis of what we’ve done. If you want to know more, there’s a 50-page report on the food industry and patents that is available. So that’s very much where that comes from.
MS: You also mentioned the conversation we might be having 20 years ago or 30 years ago. I know you haven’t been in Australia that long, relatively speaking. Have you read the IP Advisory Committee’s 1984 report that led ultimately to the 1990 Patents Act that we have to this day?
BMK: I have a hard copy in my office which was generously donated to me by one of the people who are retiring, so this is one of the original print copies as well. I can’t say that I’ve read it from end-to-end. I read the first bit, thought it was interesting, I can see where some of these points are coming from. It’s not wildly unlike the UK’s similar review in the late 70s. It says similar things, it does similar things.
MS: I guess the reason I raise that is that most prominent economist on that panel – Professor Lamberton – his two main contributions to that basically seems to be, to say, looking at the patent system, if we didn’t already have it there’d be absolutely no justification for creating it, but basically given that we do already have it, it might be too costly to abolish it. That was his first comment. And then his second major contribution was to write a one- or two-page dissenting statement where basically he said, really this hasn’t done what it’s supposed to do, it was supposed to be an economic analysis, it’s not proper economic analysis. If you did a proper economic analysis you would decide to reduce the patent term, free up import competition, and other things to weaken the system.
That attitude reflects very much the common perception of what economists have, in many cases, traditionally felt about the patent system: that it creates monopolies; that it introduces inefficiencies; that it’s not clear that there is a net positive cost/benefit. So, there’s probably a bit of antagonism between people who are supporters of the patent system for whatever reason, and economists generally as people who are perceived as often being against it.
And that’s one of the things that I find interesting, as a development – that the Office, which is the authority responsible for granting patents, which obviously has a very strong interest in that system, and presumably is occupied largely by people who are supporters of that system, is now inviting economists inside.
And I’m interested, in that context, in what your role is in terms of policy making? For example, in terms of the push back and forth as to the cost and benefits of the system? And now that you have peers at many other Patent Offices – in the US, Europe, UK – how do you interact at that level as well?
BMK: Going back to the Lamberton statement… the Lamberton statement is very much borrowed from the earlier US review of patents in the 50s, by a gentleman called Fritz Machlup, which is exactly what Lamberton said. He said if we didn’t have one I’m not sure we’d institute one. Now that we have one it would be terribly dangerous to get rid of it. [Fritz Machlup, An Economic Review of the Patent system, 1958.]
My view is that the reason for that argument is because the theory around patents – indeed the theory around most of the IP rights barring trade marks, because they have more informational value – is that they create monopolies. And so, the economics of that is very clear. If you create a monopoly, it should lead to some sort of a cost. The trade-off is that you incentivise people to do things, and that’s a good thing. And then empirically, on balance, you’d make the argument that, well, there’s more net positive than net negative.
Not having the numbers, those reviews and those views are very much based on a theory. And so the question is, what do the numbers and the data look like? And I think that once you get into that you come out with a very different story. At least that’s my view. Economists would disagree on this, and they’ll want to do so until they have good data. We’re only getting to that point now. So, in that sense, I think it’s a valid thing to ask, how long should a patent term be? (Then, of course, we have TRIPS and other fun things.)
But on that point I think most people – barring a handful – would agree a 120-year-long patent is probably too long. So we’d have general agreement on that. They’d probably say also that a two-year patent is probably too short. So somewhere in between those two extremes there lies a beautiful golden point – possibly by technology or industry – that we would ultimately like to have the term at. Where is that point? That I think is a valid question if you’ve got policy space to do things. Answering that question is hard, and no one has a good answer to it yet. I think that’s what we can contribute as economists – that it’s okay to ask that question.
In terms of the policy role that economists bring, why have IP Australia and other offices invited us in the tent? I think, generally, IP offices care deeply about people applying for rights, because they are the day-to-day customers, they’re the people we deal with, the people we serve, as clients. But at the same time, we care deeply about the government’s agenda and the economy as a whole. And in general, I think – and I’m not saying that everyone will agree with this – but the government will take the view that the IP system exists to serve a purpose and that purpose is promoting innovation.
If that’s the view then we need to balance these two things out. We need to find a balance between the interests of private applicants and the interests of people who are not applying for rights. How are the interests of non-applicants affected by the rights in the way they exist, and the powers that they provide.
So, in your submission for the Innovation Patent Review on the economic paper, you said something about the ability of innovation patent holders to use the full legal injunctions and so forth. [What I had said was that an innovation patent is supposed to be a lesser right granted for a lower-level innovation, and that there is therefore a case to be made for providing lesser relief, e.g. by denying owners of innovation patents the right to obtain injunctions against infringers – MS.] That’s a fair point but it’s an economic point should that be the case. If so, by how much? Who benefits – without the question mark.
I think the IP Office is willing to ask that question, mainly because it’s full of scientists. And they like asking questions, setting up hypotheses, getting the data and knocking it down, or keeping it up. And so they’re very much of the mind that we should do that. And I think that’s hard to do if you don’t have economists around who really care about getting the data and setting up those hypotheses. I think as an economist you have to be somewhat agnostic.
I’m always worried when people say, oh look, economists are all for this or against this. Usually that’s because they’ve got a theory. But if you’ve got data, it becomes very hard to argue.
To Be Continued…Just to whet your appetite, in Part II of my conversation with Ben we will talk about the almighty IPGOD, and also chat a bit more about the work of economists in the field of IP, including the work of Boston University researchers James Bessen and Michael Meurer, who famously (or infamously, depending on your perspective) concluded that ‘patent trolls’ cost the US economy US$29 billion in 2011.
Finally, if you are on Twitter, and interested in IP and/or economics, you could do a lot worse than follow @BenMitraKahn and @IPAustralia_OCE.