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Tim Worstall Contributor


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The Tabarrok Curve: Why The Patent System Is Not Fit For Purpose

It isn’t entirely necessary that we have a patent system: certainly not the patent system that we have. But it is necessary that we have some system to deal with the basic economic problem of the public goods nature of knowledge. There’s a balancing act going on and there’s good evidence that we’re actually trying to put our fulcrum at the wrong point.

Here’s the Tabarrok Curve: something that we might hope will become as famous as the Laffer Curve.

This comes from Alex Tabarrok at Marginal Revolution. And there’s a discussion of the background to it here by Matt Ridley.

Dr. Tabarrok argued in his 2011 book “Launching the Innovation Renaissance” that patents cannot encourage innovation if they raise its costs. In fields where innovation is a cumulative process, he argued, restricting patents would cause firms to lose some of their monopoly rights, but they would gain the opportunity to use the innovations of others. “The result is greater total innovation.”

Patents are supposed to prevent imitation, but in practice, imitation is often more costly than innovation. Most patent disputes are not about firms copying each other’s inventions but about two companies discovering simultaneously the next step in an innovative process. Yet patent law can’t easily handle that type of situation.


What I want to do is explain the very basic background to this. Our problem is that knowledge, once discovered, is a public good. That is, it’s non-excludable and non-rivalrous. Once we’ve published Newton’s equations anyone at all can use them to go to the Moon. Someone using them doesn’t reduce the amount of the equations that anyone else can use. This is also true of Apple Apple‘s “bounce back” patent, a funky new method of extracting scandium from the wastes of tungsten mining and the knowledge of sildenafil’s interesting effects on the male physique. They are all public goods in that they are, as the definition goes, non- rivalrous and non-excludable.

However, we also know that some people (no, not all. Some people none of the time, most people much of the time and near everybody some of the time) are incentivised to do the work of such discovery by money. Even if not the initial discovery itself then certainly in the hard work of actually proving it to the standard where it can be used. But quite famously public goods are extraordinarily difficult to make money out of: how can you, when everyone can have it and there’s no possible scarcity of it? This is why we often say that governments must subsidise public goods like education or vaccination: precisely because this is an area where the market unadorned won’t really work.

So, we’ve constructed the patent system: people have a 17 year exclusive right to such public goods. That is, we’ve made them excludable by law: people can now make money out of them. We think this increases the amount of effort that people will put into producing such inventions and innovations and so Hurrah! We all get more innovations and inventions.

Yet we also recognise that if we provide protection that is too strong then we will be reducing the amount of innovation and invention. For much of what actually happens in this world is, hmm, wow, d’ye mean that’s actually possible? Let’s have a look at it and see if we can tweak it to make it better? Too strong a protection for the initial invention will prevent that ongoing innovation around it. Which is where our balancing act comes in. We want to have patent protection that is strong enough to encourage more invention but not one that is strong enough to deter further invention or innovation. The Tabarrok Curve is simply a graphical representation of this point. And Tabarrok’s argument is that we’re at the wrong point on the curve.

Do note that patents aren’t the only way that we can try to solve this problem. Dean Baker has long argued that pharmaceutical research would be better funded by government prizes. I don’t think I agree with him but it’s one of a number of alternatives. But while there are alternative solutions we’ve still got, indubitably, that basic underlying problem. Knowledge is a public good and thus in a pure free market we think that too little of it will be produced. Too strong a protection and again too little will be produced.

These are the sorts of thorny questions that we instituted government to deal with for us. Hands up everyone who thinks that our current politicians are going to get this necessary balance right? Quite: it might be that it’s not so much the patent system which is not fit for purpose as the legislative.

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  • Ben Ford Ben Ford 1 year ago

    ‘It isn’t entirely necessary that we have a patent system’

    These are mere dissemblings by huge multinational thieves and their paid puppets -some in Congress, the White House and elsewhere in the federal government. They have already damaged the US patent system so that property rights are teetering on lawlessness. Simply put, their intent is to legalize theft -to twist and weaken the patent system so it can only be used by them and no one else. Then they can steal at will and destroy their small competitors AND WITH THEM THE JOBS THEY WOULD HAVE CREATED. Meanwhile, the huge multinationals ship more and more US jobs overseas.


    Most important for America is what the patent system does for the US economy. Our founders: Jefferson, Franklin, Madison and others felt so strongly about the rights of inventors that they included inventors rights to their creations and discoveries in the Constitution. They understood the trade off. Inventors are given a limited monopoly and in turn society gets the benefits of their inventions (telephone, computer, airplane, automobile, lighting, etc) into perpetuity and the jobs the commercialization of those inventions bring. For 200 years the patent system has not only fueled the US economy, but the world’s. If we weaken the patent system we force inventors underground like Stradivarius and in turn weaken our economy and job creation. America depends on a strong patent system accessible to all -large and small.

    For the truth, please see http://www.truereform.piausa.org/

  • ah, the law of patent term changed in 1995 from 17 years from date of issuance to 20 from date of filing.

    My goodness, the author of this article thinks he has something to tell us about patents. What a joke:

    “So, we’ve constructed the patent system: people have a 17 year exclusive right to such public goods. “

  • Tim Worstall Tim Worstall, Contributor 1 year ago

    Not in the UK it wasn’t. And yes, I am indeed English.

  • Dan Rose Dan Rose 1 year ago

    You’re correct, Tim. The patent term was not changed in the UK in 1995 from 17 years to 20 years.

    … It was changed in 1977: http://www.ipo.gov.uk/patentsact1977.pdf

  • Someone Else Someone Else 1 year ago

    So, you are actively denying the existence of the European Patent Convention of 1973? Which the UK entered into on 7 October 1977? So why again do you think you have anything to say about patents when you get the concept so fundamentally wrong?

  • russpoter russpoter 1 year ago

    Tim, here’s the reality: without some form if I.P. protection, a lot of inventors are NOT going to invent.

    Because very few work for “free.”

    Some claim Salk was a saint for not patenting his work. What they fail to understand — Salk had lifetime academic tenure. That is worth MILLIONS.

  • Tim Worstall Tim Worstall, Contributor 1 year ago

    Indeed, that’s the point of the curve. By providing some protection we get more invention. But if we provide too much protection then we’ll get less.

  • russpoter russpoter 1 year ago

    Yes, are there a lot of useless, phony-baloney, ambulance-chasing lawyers (John Edwards, Obama, Eliza. “Lie-awatha” Warren)? Of course.

    Here’s what I’ve done — ignore the loser-lawyers. Just don’t respond. That drives up their costs, and most don’t have any $$.

    That’s the No. 1 rule in litigation — you give in, you only get more litigation. Resist to the bitter end. That sends a message.

  • Then you are an expert on patent law in the UK. But your expertise is patent law in the US is not readily apparent, either in this post or on your website.

    The US GAO published a study showing that only 18% of patent lawsuits are initiated by patent licensing companies, and the rest of the lawsuits are filed by manufacturers.


  • Henrik Peytz Henrik Peytz 1 year ago

    It’s disgusting how free-market capitalists flock to the teat of regulation once the differential-quotient of supply/demand goes towards infinity.

    As a citizen of this world, I DO NOT demand that the powers that be are either capitalist or communist in expression; but I DO demand that they are consistent when they choose one or the other. I can’t respect this commucapitalistic alchemy that turns bars of led into gold simply because the led-producers don’t feel they’re being paid enough.

    I can’t help but think we’ve understood innovation the wrong way around. We tend to think that when something gets invented THEN that will create a demand, when really it should be the other way around: We demand something, and that will incentivize the invention of the thing.
    We already have a system in place for such kind of innovation: Kickstarter.com . People float an idea, gathers demand and pledges to pay for the development, and when the subject pledge-goal/innovation is made, they collect their bounty. Sure, a lot of the stuff made on kickstarter gets patented anyway, but it still holds a vague reminder of how it COULD be.

    In Denmark we have a saying that reads “Need teaches naked woman to make garments” loosely translated. In the world today, the proverb seems to be “Naked woman saw garments, and paid overprize for something she really didn’t need”.

    There is no philantropical or altruistic underpinning to the current system. The least you can do is call it by its proper name: Greed.