How Much do Patents/Copyrights Cost Us?

About $435 billion according to economist Dean Baker in his new book Rigged,

This strengthening of copyright law and altering its structure to adjust to digital technology and the Internet is interesting not only because of the costs involved for the larger economy but also because it highlights alternative ways in which society adapts to technological change. Technological change has destroyed many sectors of the economy. The spread of digital cameras essentially destroyed the traditional film industry, causing the collapse of two major U.S. corporations, Kodak and Polaroid, and leading to the loss of tens of thousands of jobs. While the collapse of these companies and the job losses were unfortunate, no one would have considered it a reasonable strategy to block the spread of digital cameras.

​On the other hand, when the development of digital technologies and the Internet threatened the business model of the entertainment industry, the response was to pass laws to contain these technologies to preserve the sector’s mode of doing business. This is a great example of how it is not technology itself that is determining the distribution of income, but rather how various interest groups are able to write the laws governing the use of technology. (Kindle Locations 1793-1801)

He continues a few paragraphs later with,

Table 5-6 shows projected 2016 spending and potential savings in areas where the costs of current monopolies are likely to be largest. Savings for recorded music and video material as well as recreational books are pegged here at 50 percent, under the assumption that the tax-credit system will make available a vast amount of free writing, music, and video material. Savings on educational books are pegged at 70 percent, under the assumption that the bulk of textbooks will be produced through the publicly funded system. The savings for prescription drugs are based on the calculation in Table 5-3 (see below). Savings in newspapers and periodicals, motion pictures, and cable TV are pegged at 20 percent. (With cable, many people may opt to rely on the Internet and cancel cable subscriptions.) The figure for medical equipment is loosely derived from the earlier calculation in Table 5-3; it is larger here because this figure reflects spending to purchase the equipment rather than the fees charged to patients. The total potential savings are $ 435 billion, or 2.4 percent of GDP.

The calculations shown in Table 5-6 are speculative, of course, because there is no way to determine in advance the effectiveness of an alternative funding mechanism to replace patents and copyrights. There are good reasons for believing that an alternative would be at least as effective, especially in the case of patents. The prospect of having fully open research, where the incentive is for dissemination rather than secrecy, would almost certainly lead to more rapid progress than the current patent system.

More importantly, bringing prices in line with production costs would offer enormous gains, especially in the case of drugs and medical equipment. It is difficult to understand the logic of paying for innovation at the point where a patient needs a drug or access to medical equipment. Monopoly pricing imposes an enormous burden on people at precisely the time when they are least able to bear it. A payment system should be structured to let patients and their families focus on getting well, not paying for their health care. No one would propose determining payments for firefighters when they show up at a burning house, but this is effectively what we are doing with patent monopolies in the medical sector. The absurdity is heightened by the fact that the ultimate payment is almost always a political decision, not a matter of consumer choice, so proponents of the patent system can’t use the classic justification for market outcomes.

​Weakening or eliminating patent and copyright support for innovation and creative work would radically reduce waste. In a market system, the best way to make profits should be to produce better products, not to run to court. But the patent system increasingly supports this second path to profits. (Kindle Locations 1883-1905)