Patents, prizes, government grants, and R&D tax incentives are ways to reward and incentivize innovation. One of the ways in which these schemes differ is the timing of the reward. Patent holders are rewarded after the product is developed and patented over the course of 20 years (length of the patent) but only if the product is commercialized (since rents are earned from the market). Prize-winners are awarded according to the competition rules although it is almost always after some sort of result. Government funding and tax incentives is granted throughout or before the development period and often before any final results are produced. R&D tax incentives have a slight delay from the process of getting through the tax system to realize those benefits.
As far as incentives go, crowdfunding more directly encourages the dissemination of technology rather than the creation of it. This begs the question of whether crowdfunding and patents as incentive schemes overlap to a point of inefficiency and whether crowdfunding may undermine the justifications and existence of a patent system under certain circumstances.
This dichotomy of “ex ante” versus “ex post” rewarding calls into question many of the philosophical underpinnings of intellectual property regimes. The “ex-post justifications” for IP claims that without IP protection, innovators will not, upon ideation and initial development of the IP, continue to further invest in the improvement or commercialization of the product. It is the same sort of argument found in property law for the privatization of land in hopes of internalizing both the costs and benefits of the land thus resulting in efficient use. The traditional/ideation justification of IP is that innovators have expended significant costs to develop the innovation thus putting them at a disadvantage in a competitive market against others who have made no such contribution to innovation. But at the production and distribution stage, the intellectual property already exists and the additional dissemination costs are dictated by internal efficiency, which is how a competitive markets function. As long as people are willing to pay a price equal to marginal cost, some firm will distribute it, and we theoretically won’t see the kind of market failure that would occur with ideation.
Perhaps, crowdfunding and patents together provide excessive incentives to innovate and commercialize. Or perhaps this incentive to disseminate creates ex ante incentives to innovate. It is difficult to parse out the difference.
Christine Shim is a J.D. candidate, ’15, at the NYU School of Law.