Intellectual Asset Management: Maybe the real problem with Bessen and Meurer is that they just don’t understand economics, by Joff Wild
This post originally appeared in Intellectual Asset Management on November 28, 2014.
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Following the publication of the blogs, last week we received an email from Matt Miskimin, director of IP monetisation and transactions at AWAIPro AB in Sweden, who thought there might be even more reasons to doubt the professors. Matt actually comes at the issue from a very different angle. It is that even if we accept that the figures Bessen and Meurer come up with are accurate (and, of course, it is highly unlikely that they are), the idea that they represent any kind of loss to the US economy is just plain wrong; in fact, the precise opposite may well apply.
Now, I am not an economist so cannot comment on the detail of what Matt says, but I am happy to share his analysis with the blog’s readers to see what they think. So, here goes:
Given that Messrs Bessen and Meurer are academic “economists” at a respected university in Boston, that they have given themselves the vaunted position of arbiters of moral right and wrong in the NPE/troll debate, and have attached figures such as $29billion as NPE/troll “taxes” on the US economy, it is worth asking whether the professors have actually defined a “public good” or “public evil”.
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A licensing fee or royalty agreement is, in essence, just a transfer of wealth from one entity to another. The NPE/troll “tax” neither increases nor decreases the nominal amount of wealth in the economy. But the redistribution of that wealth and the velocity of that wealth as it is moving through the economy does have a significant effect on overall economic activity; ie, GDP. NPEs/trolls do generally pay salaries and even invest in things like research projects, patents, new infrastructure, buildings, plane tickets, food and so on – classic “rings on the water”.
If we assume that your average NPE or troll, irrespective of which of the Bessen and Meurer definitions we use, is likely to have an MPC/MPS similar to the rest of the economy, then there is, paradoxically, huge potential for increasing GDP by fostering a redistribution of wealth from a number of large corporations that are regularly accused of amassing profits from normal operations, but delaying tax payments by using offshore entities to house licensing activities, while at the same time not necessarily re-investing enough of those profits in new R&D or infrastructure. Offshore profits are locked away due to the tax code and therefore tend to have a low MPC or ME effect on the US economy.
So, if the MPC of the US economy is 0.8 then what might the effect be of transferring the $29 billion NPE/troll costs back into the general economy via the NPE/trolls, and what is the likely net tax and GDP effect? Right! 5 x 29 billion = $145 billion in likely economic activity thanks to the multiplier effect of the wealth redistribution. Tax that wealth at normal rates for income or profit and you might just help balance the budget and also spur new innovation at universities and corporations that suddenly have gotten an IP-driven licensing revenue flow…