miscellaneous factZ

Last Friday and Saturday I was at the 2008 European Policy for Intellectual Property (EPIP) conference, held this year in Bern. I presented my paper on the optimal term of copyright and discussed a paper of Luca Spinesi’s on ‘Imperfect IPR enforcement, inequality, and growth’. Below can be found ‘impressionistic’ notes from some of the other sessions I had a chance to attend.

Jim Bessen: How can and how should economics inform patent policy?

• What is aim of ‘Property Rights’
• Look at example of tradable permits for pollution
  1. Do institutions do their jobs
  2. Resources (is air cleaner)
  3. Social welfare
• For patent system, thanks to recent work, first two are within our reach (though not within our grasp)
• Institutions. Want:
  1. Specificity
  2. Searchability
  3. Predictability
  4. Transactability
  5. Enforceability
• Patent system is not doing so well
  1. Specify: reasonable but lots of debate about what claims mean (40% overturn rate on appeal of district court decision re. claim construction)
  2. Search: pretty poor (esp. in ICT). Many firms do not bother to search.
  3. Predictability: low (e.g. no defense insurance)
  4. Transact: can be anti-commons
  5. Enforce: pretty unpredictable
• Resources (Innovation)
  • Patent system is doing so well due to overlapping claim (pooling problem)
  • Fuzzy boundaries: dispute costs
    • Value patents (upper bound from renewal, re-assignment, int’l filings, firm market value, surveys, case-studies)
    • Dispute costs (lower bound)
    • For pharma: value ~ $12 billion/year, costs ~ $1 billion
    • Other industries: value ~ $2 billion/year (from 80s to present), costs ~ $1 billion / year up until mid 90s since when they have spiked and now much higher than value — e.g. in late 90s costs 3x value
    • Could use fees to address this (raise from ~$5000 to ~$30000)

Reto Hilty: Enforcement of intellectual property rights on Enforcement of IPRs

• Huge figures circulate about losses from piracy
  • Most figures are (very) dubious and produced by the industry
• History of IPRED (and IPRED2)
• More intl stuff:
  • TRIPS+
  • FTAs (US)
  • EPAs (EU)
  • ACTA
• Why has this focus on enforcement happened
  • General mantra that strengthening IP rights is good for innovation
  • Patents: probably have over-protection
    • Full patent protection (EPC 1973) — i.e. patent covers subsequent uses even if not anticipated. (probably a mistake)
    • Biological substances — full patent protection particularly problematic
    • Software patents …
    • Drugs and developing countries
  • Copyright law
    • Internet users see constriction not justice
    • Entertainment + TPMs — “unjustified profits”
    • Scientific research: unnecessary constrictions (Open Access)
  • Industrial design
  • Trade-mark law — large extensions in the last 80s (protection of colours, shapes unjustified)
  • Eventually this constant extension generated such opposition that it is now at a standstill
  • Thus, rightsholders move focus to enforcement (focus on ‘efficiency’)
• But stronger enforcement also causes problems [ed: the strength of a right in fact is is product of enforcement and strength in theory]
  • will there be a backlash?
• Also extension of IP geographically — esp. to developing countries
• What justifications are there for IP enforcement
  • IPR not valuable without some enforcement, certainty …
• One size cannot fit all: whether for IP itself or for enforcement
  • If IPR is misused enforcement can make things worse
• Suggestions:
  • Decriminalize where too much IP protection
  • Strengthen enforcement where IP truly detrimental
  • Distinguish IP protection from consumer protection (counterfeiting not the same as IP protection)
  • [ed: one concern here is that it seems here we are using enforcement/non-enforcement to correct IP rights which are themselves wrong — enforce where good, don’t enforce where not good. But if that were agreed why couldn’t we correct the underlying problem]

Davis, Davis and Hoisl: Leisure time invention

• PatVal data (10.5k German patents sampled with survey of inventors)
• Leisure time has +ve impact on inventive output
• Leisure time invention +vely linked to interactions with co-workers and outsiders
• More leisure time invention in conceptual-based technologies rather than science-based technologies
• Incidence of leisure time invention will be -vely related to project size
• Most hypotheses confirmed

Ashish Arora: Patents and Innovation

• Evidence for benefits of patents on innovation is mixed
  • Example of early Swiss and German dye and chemical industries
  • Surveys main evidence which show there are rents from patents but with equivalent subsidy ratio that is not that high
• Kyle and McGahan: no inducement of research in diseases of poor countries after TRIPs
  • Even if patent protection is important no reason for developing countries to have them (already have protection in developed countries)
• Thickets, patent litigation and trolls
  • Cockburn MacGarvie and Mueller (2008): fragmentation increasing across all industries
  • Substantial litigation costs
  • Geraldin, … find no thicket problem in 3G telephony
• Anti-commons
  • Completely unpersuaded by the evidence
  • All examples came from universities: US research universities have made a mess of tech-transfer and patenting, alienating faculty and angering corporate partners (Bayh-Dole has had significant unintended bad consequences)
• Markets for technology (specialization)
  • The first order effect of patents may be on trade in technology
  • Having people whose business it is to sell technology is really important (particularly if you are a developing country)
  • Licensing flows in US: $66 billion in 2006 (Carol Robbins). Good proportion of domestic R&D
  • Hall and Ziedonis evidence on specialist semiconductor firms
  • Gambardella and Giarratana (2007): software security patents
• Making patents more useful
  • Much of the problem is bad patents due to:
    1. Invention is poorly understood (underlying knowledge base is poor)
    2. The claims are written with the intent of claiming as much while revealing as little as poorly understood
  • ‘Metes and bounds’ of the patent are unclear to all except handful of patent lawyers
  • Not new: cf. German chemical industry back in 19th century
  • Solution:
    1. Force patents to be written using (i) standard terms (ii) without legal jargon (whose only justification is a futile reach for precision)
    2. Patents should be (i) published expeditiously (ii) transactions (licenses, assignments, beneficial interests) in patents should be recorded and disclosed

Survey on Patent Licensing: Dominique Guellec (OECD)

• Why licensing out:
  • Value from unused inventions
  • Inventions with applications elsewhere
  • Fabless firms
  • Establishing technology as a standard (may raise Competition issues)
  • Cross-licensing deals (ditto)
• Expected Economics Effects (+ve)
  • Increases diffusion
  • Reduces duplication
  • Boost downstream competition
  • Facilitates specialization
• Can also be -ve (mirror image of +ve ones e.g. reduced duplication = less competition)
• Graph showing huge increase in royalty/license payments since mid 80s: ~$10B/year to ~$110B/year) (source: world bank)
  • But how much of this real (i.e. not tax manipulation etc) — and also includes copyright etc
• OECD survey implemented by EPO by JPO/University of Japan on licensing behaviour
  • focuses on licensing out
  • response rate: 42% in europe, 34% in japan [ed: japan responses are less reliable for reasons not entirely clear to me]
  • no questions on revenues (people don’t respond when you ask this — either don’t know or don’t what to tell)
• Results:
  • 35% of european companies license out, 59% of japanese firms
  • Licensing to non-affiliated companies: 20% of Eur, 27% of Japanese
  • U-shaped prob of licensing as a function of size
  • By tech field: highest in chemistry and electronics
  • Younger companies do it more (controlling for size) [ed: issues here though. Old firms which are small are not the same as young firms that are small]
  • Why do it?
    • Earning revenue: 60% EUR, 52% JPN; cross-licensing: 18%, 18%
  • Patents you would have licensed but could not/did not: ~20%
    • Why? Difficulty of finding a partner (25% of EUR and 18% of JPN)
    • Not important: problems of drafting contracts or technology not mature
• Difficulty of finding partners could be for several reasons but suggests could be role for more/better intermediaries to facilitate transactions (INPIT in Japan)

Patent Thickets and the Market for Ideas: Mark Schankerman (LSE)

• Market for ideas (patent licensing and sale of patents) [ed: this is obviously not the whole market for ideas …]
• Study market though new lens: settlement of patent infringement disputes
  • Do not know whether when settlements happen licensing actually occurs
• Focus on 2 key aspects:
  • Fragmentation of rights (’patent thickets’)
  • Certainty of enforcement (CAFC led to more certainty — not worrying here about pro-patent bias)
• Fragmentation:
  • Trad story: bad (higher transaction costs, bargaining failure …)
  • Dissenting voice (Lichtman 2006): greater fragmentation lowers the value at stake in each negotiation and this reduces the incentive to bargain hard. This speeds up settlement. Of course still leaves question of whether this reduces total negotiation time.
• Model gives us various hypotheses:
  • H1: more complementarity means longer negotiation
  • H2: more fragmentation means shorter negotiations
  • H3: Settlement negotiations will be shorter for patents litigated after CAFC (1982)
  • H4: Impact of fragmentation external rights will be lower after the introduction of CAFC
  • H5: CAFC has a bigger impact where the preceding circuit had more uncertainty
• Results
  • More fragmentation: leads to lower dispute duration (19.6 months for < 50th percentile frag vs. ~16 months for > 90th percentile)
  • CAFC has a big effect on dispute duration (~33 months to ~18months)
• Conclusion: looking at delay (not royalty stacking on other issues)
  • Certainty: good
  • Fragementation: not bad (and maybe good)

I’ve just put out an updated version of my paper on Search Engines entitled: “Is Google the next Microsoft? Competition, Welfare and Regulation in Internet Search”, the original version of which went up in June. The revised version is available either from SSRN:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1265521

or from here:

http://rufuspollock.org/economics/papers/search_engines.pdf

Abstract

Internet search (or perhaps more accurately `web-search’) has grown exponentially over the last decade at an even more rapid rate than the Internet itself. Search engine providers such as Google and Yahoo! have become household names, and the use of a search engine, like use of the Web, is now a part of everyday life. The rapid growth of online search and its growing centrality to the ecology of the Internet raise a variety of questions for economists to answer. Why is the search engine market so concentrated and will it evolve towards monopoly? What are the implications of this concentration for different ‘participants’ (consumers, search engines, advertisers)? Does the fact that search engines act as ‘information gatekeepers’, determining, in effect, what can be found on the web, mean that search deserves particularly close attention from policy-makers? This paper supplies empirical and theoretical material with which to examine many of these questions. In particular, we (a) show that the already large levels of concentration are likely to continue (b) identify the consequences, negative and positive, of this outcome (c) discuss the possible regulatory interventions that policy-makers could utilize to address these.

7/10. Katyn, Andrzej Wajda’s latest film, takes as its subject the massacre by the USSR of several thousand Polish officer POWs in April 1940. While the film ends with a very graphic rendition of the killings, for almost all of its two hours the focus is on the fate of those left behind, with most of the attention centred on three women — the wife of a general, the wife of a major and the sister of a pilot/engineer.

Cumulatively, the film builds a devastating portrait at a very personal level of the impact of the war and its aftermath. Implicated here are not just the Katyn massacres but the Nazis brutality and the repression of the Communist regime in the early post-war period when it ‘rewrote’ the events of Katyn (blaming the massacre on the Nazis) and acted vigorously to silence those who spoke out against these distortions.

While not quite a match in its narrative sweep for Man of Marble, or in its photography and style for Ashes and Diamonds, this was still very powerful filmmaking whose impact on the viewer was commensurate with its subject matter — you will leave this film sadder than you entered it.

One of the active Open Knowledge Foundation projects is Open Economics. A substantial part of that effort ends up being data acquisition and ‘cleaning’: getting hold of economic data, parsing it into (computer) usable form and adding it to the Store. (Wouldn’t it be nice if that data was already nicely packaged up or at least in a decent raw form …).

Once this job is done, the data is there in a nice clean state for others to use — plus we can draw some nice graphs (as we will see below). As an illustration of this process, we’ll look at one particular dataset acquired earlier this year when, motivated by the large increases in commodity prices and the concerns expressed regarding their impact, I decided to see what data I could dig up on food prices (starting with Wheat).

As usual, it was US government material that was most easily available (in a decent format) and I decided to start off with historical information on wheat to be found in the Wheat Yearbook, in particular the contents of:

http://www.ers.usda.gov/data/wheat/yearbook/WheatYearbookTables-Recent.xls

While the data was available (and open — since US Govt provided) it was in a format that was not immediately computer usable (lots of blank lines etc). Thus, the first step was to parse this into standard csv file format (see script here) and then upload this to Open Economics. The result:

http://www.openeconomics.net/store/517d7c4e-3cb7-4e8f-aaa1-745dd665ad1f

Not only do we now have nice clean data but, thanks to plotkit, Open Economics has javascript graphing so without any more effort we can automatically have graphs of the resulting material. Not only does this allow us to answer our original question (see Fig 4) but these graphs also tell a fascinating historical story:

US Wheat: 1866 - 2007

NB: if the figures are too small click through for the full-size versions on Open Economics (the dates at the bottom run from 1866 to 2007)

Figure 1: Output (Millions of Bushels)

First up is output. As can be seen here output rose steadily (approximately linearly) up until the First World War. It then stayed flat or even fell during the inter-war period — the Great Depression and the Dust Bowl can be seen in the sharp dip in the early 1930s. Following the Second World War output rose, accelerating (exponentially?) up until the early 1980s when it has flattened out, even declining (with sharp variations) to the present.

Looking at these raw output figures the immediate question one asks (at least as an economic historian) is: what underlying causes drove these changes in output. In particular, output is the product of two factors: total acreage in use and yield (average output per acre) so it would be interesting to see time-series for them as well. Fortunately this data is also available:

Figure 2: Acreage (Millions of Acres)

The first thing to note is that these series start in 1866, the year after the American Civil War ended. This was a period of great westward expansion in cultivation in the United States — the “Opening of the Prairies”. The graph bears graphic witness to these changes: we can see that harvested acreage tripled between 1866 and the outbreak of WWI in 1914.

This massive expansion was to have a profound effect far outside of the US: food prices dropped around the world due to the increase in supply. In Western Europe this lead to a ‘Great Depression’ in agriculture right up until the First World War (which in turn had a significant effect on European politics creating protectionist alliances between peasants and landowners in many European countries). It also assisted industrialization by keeping the price of bread low for the fast growing industrial proletariat.

However, by the end of WWI most of the acreage that could be cultivated was already in use. After that point, while there has been variation in planted acreage (perhaps driven by substitution between wheat and other crops) there has been no long term trend (whether increasing or decreasing). Thus, while the increase in output up to WWI can be largely explained by increases in acreage under cultivation [^1] the large increases in output in the post-WWII period can’t be. This brings us then to the second major factor in explaining changes in output: yields.

[^1]: a crude eyeballing suggests that output increased somewhere between 3-4 times between 1866 and WWI. This is in line with the increase in acreage. That said, diminishing returns arguments (best land is cultivated first) would suggest that to maintain yield per acre on a vastly increased acreage would have necessitated some increase in yields.

Figure 3: Yield (Bushels / Acre)

One could not ask for a sharper confirmation of our previous hypothesis than Figure 3. As it shows average yields were almost perfectly flat from 1866 up until the end of the Second World War. From that point yields took off growing sharply, but at an almost constant rate, up until the mid 70s, following which the growth rate slowed substantially (though yields still continued to grow albeit with increased variability). In concrete terms this corresponded to a rise in yield from around 12 bushels per acre at the end of WWII to somewhere around 35 bushels per acre in the 70s — and around 40 today.

To put this most starkly: there was a roughly 3-fold increase in yields in this 30 year period. Again this is a particularly ‘graphic’ testament to the ‘green revolution’ of the post-war period which was driven largely by the development and adoption of new corn varieties (hybrid corn), fertilizers etc.

Figure 4: Price ($ per Bushel)

Lastly we come to price. Here, despite substantial fluctuations the basic trends fit with our historical intuition. There is little change between 1866 and WWI, a sharp rise during the war, a substantial decline in the inter-war period, then another sharp-rise during WWII (wars are good for farmers!) followed by stabilization (or even slight decline) until the mid 1970s when there is another sharp rise. Following that there is substantial variation but no great changes until the present when the line shoots up again (doubling from around $3 per bushel to somewhere near $6 in a year).

As basic economics tell us, price should reflect the interaction of supply and demand. The marked stability of price over long periods (particularly those where supply has increased) suggests then that demand has matched supply (or vice-versa) fairly well over this period (one might also need to take account of the fact that there may also have been substantial government intervention to stabilize prices).

Given that supply has risen substantially through the whole period, and especially since WWII (see Fig 1) this means that demand has also been climbing sharply. This is true: world population has increased at least 5x since 1850 and roughly tripled since WWII (in addition many people, especially in developed countries have increased their per-capita consumption, by eating more and better — as well as wasting more).

It would be interesting to imagine what would have happened if this kind of population increase, particularly that since WWII, had occurred without the massive increase in yields shown in Figure 3 (part of the answer may be that population would not have increased so much …). Certainly the price increases seen recently may reflect the kind of growing surplus of demand over supply that we would have seen without the ‘green revolution’. As such, they may be signals of the significant readjustments that will be needed in the near future, whether that be increases in supply, reductions in demand or more efficient use of existing supplies.

4/10. Started well but faded badly. Its equation of redundancy programmes in multinationals with the “Final Solution” was simultaneously facile and pretentious.

For large data centres a big industry player estimated costs of £22 / GB / Month = £250k / TB / Year. Majority of this was hardware and energy costs (not costs of human sysadmins). This seems quite a lot. However, Amazon S3 quote for Europe (cheaper for US):

Storage
$0.18 per GB-Month of storage used

Data Transfer
$0.100 per GB - all data transfer in

$0.170 per GB - first 10 TB / month data transfer out
$0.130 per GB - next 40 TB / month data transfer out
$0.110 per GB - next 100 TB / month data transfer out
$0.100 per GB - data transfer out / month over 150 TB

Requests
$0.012 per 1,000 PUT, POST, or LIST requests
$0.012 per 10,000 GET and all other requests*
* No charge for delete requests

Subtracting say £2 for costs of storage and transfer leaves £20 per GB Month = $40 / GBM. On Amazon’s figures this is around 235 GB of transfer (0.235 TB). A ratio of 235 to 1 on the underlying data. Not necessarily an infeasible level (235 users / byte / month). This also demonstrates that b/w costs will dwarf storage costs in most cases.

7/10. Funny, ‘blasphemous’ and affecting. This coming-of-age story is nicely done and has some very sharp moments. The hero grows on us throughout the film largely thanks to his (for want of a better term) simple decency. (This runs deep. Even his dope dealing has a heavy air of decent all-American/Puritan capitalism about it: he’s doing to help his mum and dad and saving every penny. Plus unlike Olivia who just hangs around all summer, he’s working — and working hard). Despite its final arrival at a (fairly) feel-good ending, the strongest feature of the film it its portrait, most starkly presented by Dr Squires, of a culture utterly disconnected, lost in a lonely hell of priapism, drugs (legal and illegal), and dysfunctional relationships.

June 2008, JEL, p. 426, in review of Robert Frank’s Falling Behind: How Rising Inequality Harms the Middle Class by Frank Levy:

… By that time [mid 1980s] many of the trends noted by Frank were already underway. Since the late 1960s, the American Council of Education has been measuring the attitudes of college freshmen. Between 1968 and 1972, about 40 percent of freshman felt that “being very well off financially” was important or very important. In the fall of 1973, this proportion jumped to 62 percent and continued to rise steadily after that leveling off at 75 percent in the late 1980s (American Council of Education [The American Freshman report]). It was also in the early and mid-1970s that majoring in business administration took off while majoring in sociology shrank.

Of course one might wonder if the late 1960s were just an unrepresentative period in which the importance of money was less than it usually had been. In that case the later trend would be a simple reversion to the mean.

5/10. OK but unconvinced that this was an event of such fascination/significant as to be worthy of a cinematic documentary. By the end was more interested in the personal relationships (and why they broke down) than the tight-rope walk itself. Unfortunately, these other areas remain relatively unexplored (perhaps rather reasonably people didn’t want to go into this kind of personal info …).

7/10 (8/10 for genre). A sound successor to the first installment and well above average for its genre. Ledger’s performance as the Joker is indeed spellbinding. However, to my mind, the film was not as amazing as some of the reviews had made out. In particular, it made the classic error of many modern action blockbusters in delivering a smash-bang action sequence with such monotonous every-10-minute regularity that it undermined their impact while simultaneously starving plot and characters of the room to develop. Thus, despite its dark tone, Ledger’s undoubted menace and terroristic theme (which some have gone as far as to interpret as grand statement), this was more the classic mindless blockbuster — albeit mindlessness of a very high order! — in which crash, bang, wallops were strung together by (an often rather skimpy) plot.