Thursday, January 15, 2009

IAM blog on Shane citing Bessen?

On 14 January, MAPP released a report by Scott Shane titled “The Likely Adverse Effects of an Apportionment-Centric System of Patent Damages.”

On 15 January, the IAM blog noted:

Something worth noting is that one of the sources that Shane cites with regard to his calculations of patent value is James Bessen. The same James Bessen who co-authored Patent Failure with Michael Meurer and argued that the US patent system was, in most cases, not delivering the benefits that it was originally designed for. It is ironic that his work is being used in an argument to keep things as they are, when Bessen himself strongly believes that fundamental change is needed.

The citation appeared in the following context:

a. Conservative Methodology – Estimated Total Value of U.S. Patents Held by
Public Companies Divided by the Market Value of Those Companies. We can
conservatively estimate the share of the value of public companies attributed to
patents by taking the estimate of the value of U.S. patents in force that are held by
public companies and dividing it by the total value of U.S. public companies.

According to research by James Bessen, 45 percent of the value of U.S. patents is
held by public companies.4

At the averages reported by Bessen, Barney and
Putnam, this means that the total value of U.S. patents held by U.S. public
companies is between $77.3 billion and $98.4 billion. On November 17, 2008,
the market capitalization of the Wilshire 5000 was $9.8 trillion. Thus, using a
conservative estimate, the value of patents held by U.S. public companies was
between 0.8 and 1.0 percent of the value of those companies.

Shane is indicating that this is a CONSERVATIVE estimate of the value of public
companies attributed to patents. The cite is to a paper by Bessen in Research Policy,
not to the book Patent Failure. But Bessen and Meurer have been criticized for such
a low estimate. Shane is hoisting Bessen on his own petard.

Note that in part b, Shane writes Some sources attribute a much greater share of the value of public
companies to their patents than comes from this conservative estimate.

Did Joff Wild not read parts 2b and 2c?

***Separately, Innovation Alliance put out a press release-->

The Innovation Alliance, a coalition of companies seeking to enhance America's innovation environment by improving the quality of patents and protecting the integrity of the U.S. patent system, today applauded the release of a new study that details the negative impact on the U.S. economy that would result from enactment of patent legislation similar to that considered in the last Congress.

The new study: "The Likely Adverse Effects of an Apportionment-Centric System of Patent Damages" is authored by Scott Shane, Ph.D., Professor of Economics at Case Western Reserve University. It was commissioned by the Manufacturing Alliance on Patent Policy.

Dr. Shane's analysis concludes that the adoption of an apportion-based approach to damages for patent infringement would reduce patent value substantially, shrink the value of public companies, decrease investment in R&D, impose downward pressure on manufacturing jobs and compensation, and favor certain industries over others. Specifically, the study detailed several adverse effects, including:

1. Between 51,000 and 298,000 U.S. manufacturing jobs put at risk.
2. Reduction in U.S. patent value of between $34.4 billion and $85.3
3. Reduction in value of U.S. public companies of between $38.4
billion and $225.4 billion.
4. Reduction in R&D of between $33.9 billion and $66 billion per year.
5. Industries employing fewer people favored over those employing
more people.

Despite the significant impact a change in the current patent awards system would have on thousands of U.S. employers and millions of U.S. workers, it is believed that this is the first time the apportionment of damages issue has been studied and the impacts quantified.

"Given the state of our economy, it would be unwise to unnecessarily experiment with our patent system - putting jobs and investment in R&D at risk," said Taraneh Maghamé, Vice President, M&A and Government Relations, Tessera, Inc.


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