Feedback on the Innovation Promotion Act - Revision history

Juliette.richert at 16:20, 27 March 2017

2017-03-27T16:20:45Z

Juliette.richert at 16:51, 24 March 2017

2017-03-24T16:51:08Z

DylanDickens at 16:38, 22 June 2016

2016-06-22T16:38:51Z

ArielSun: Created page with "===Executive Summary=== The Act, as written has a broad scope in terms of qualified property and gross receipts, and has three potential normative economic justifications...."

2016-06-01T20:29:47Z

Created page with "===Executive Summary=== The Act, as written has a broad scope in terms of qualified property and gross receipts, and has three potential normative economic justifications...."

imported>DavidZ: /* Questions and answers */

2015-11-12T22:34:32Z

Questions and answers

imported>DavidZ at 22:32, 12 November 2015

2015-11-12T22:32:46Z

imported>DavidZ at 22:29, 12 November 2015

2015-11-12T22:29:31Z

imported>DavidZ at 22:27, 12 November 2015

2015-11-12T22:27:47Z

imported>DavidZ at 22:25, 12 November 2015

2015-11-12T22:25:36Z

imported>DavidZ at 22:25, 12 November 2015

2015-11-12T22:25:23Z

← Older revision		Revision as of 16:20, 27 March 2017
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−	~~[[Category:Internal]]~~	+
−	~~[[Internal Classification::Legacy\| ]]~~
	===Executive Summary===		===Executive Summary===

← Older revision		Revision as of 16:51, 24 March 2017
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	*Given information asymmetries between the firm and the tax collector, any allocation of value will lead to moral hazard.		*Given information asymmetries between the firm and the tax collector, any allocation of value will lead to moral hazard.
	**Patents on ‘valueless’ inventions will be sought. Suppose that a firm can build a component using public domain knowledge or pursue an almost identical method that embodies the tiniest and least useful of inventive steps but that could be patented. As the patent would qualify the firm for a tax deduction on some allocation of the product’s value, the firm should pursue the patent.		**Patents on ‘valueless’ inventions will be sought. Suppose that a firm can build a component using public domain knowledge or pursue an almost identical method that embodies the tiniest and least useful of inventive steps but that could be patented. As the patent would qualify the firm for a tax deduction on some allocation of the product’s value, the firm should pursue the patent.
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		+	[[Category:Innovation Policy]]

← Older revision		Revision as of 16:38, 22 June 2016
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		+	[[Category:Internal]]
		+	[[Internal Classification::Legacy\| ]]
	===Executive Summary===		===Executive Summary===

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 *Allocating value efficiently to components of a multi-component product (‘other dispositions’) is, in general, an extremely difficult problem in economics.
 **Suppose that two firm’s patents are used to make a product and that the patents are complementary: one alone would make a product with $10 value but together they make a product with $40 value. How do you allocate the $20 complementarity created between the two of them?
 *Given information asymmetries between the firm and the tax collector, any allocation of value will lead to moral hazard.
 **Patents on ‘valueless’ inventions will be sought. Suppose that a firm can build a component using public domain knowledge or pursue an almost identical method that embodies the tiniest and least useful of inventive steps but that could be patented. As the patent would qualify the firm for a tax deduction on some allocation of the product’s value, the firm should pursue the patent.

@@ Line 38: / Line 38: @@
 *Section 936(h)(3)(B)(i) implicitly includes trade-secrets through ‘invention, formula, process, design, pattern, or know-how”. Providing incentives for firms to keep trade-secrets directly induces the market failures than much innovation policy is intended to mitigate. It also has an extensive moral hazard issue.
 Question: To what extent should gross receipts from services that are directly related to a product that uses qualified property be included in the determination of qualified gross receipts?
@@ Line 48: / Line 49: @@
 *Weighting deductions by R&D expenditure disincentivizes the creation of a market for ideas, where many participants act as intermediaries.
 Question: What would be the appropriate approach in determining the expenses properly allocable to innovation profits? Should the proposal just include authority for the Secretary to adopt allocation rules or is more specific guidance necessary?

← Older revision	Revision as of 20:29, 1 June 2016
(No difference)

@@ Line 29: / Line 29: @@
 Question: The proposal includes a broad definition of “qualified property” for purposes of determining qualified gross receipts.  Is that the appropriate scope of intellectual property that should qualify for the deduction?
-Answer: ===No. Any scope beyond just patents has little if any normative economic justification. Even patents suffer from a moral hazard issue.===
+Answer: '''No. Any scope beyond just patents has little if any normative economic justification. Even patents suffer from a moral hazard issue.'''
-**There is no market failure associated with films and video tape.
+*There is no market failure associated with films and video tape.
-**There is limited (if any) market failure associated with closed-source computer software. Unless an outsider can review the source, the release of a piece of closed-source software does not provide information about the nature of the invention, save as through its observable functionality, and so cannot generate positive externalities.
+*There is limited (if any) market failure associated with closed-source computer software. Unless an outsider can review the source, the release of a piece of closed-source software does not provide information about the nature of the invention, save as through its observable functionality, and so cannot generate positive externalities.
-**Incentives for either computer software or patents creates a moral hazard problem. Trivial code or patents, that do not constitute true innovation, will be claimed by firm as the basis of products or processes in order to minimize taxes.
+*Incentives for either computer software or patents creates a moral hazard problem. Trivial code or patents, that do not constitute true innovation, will be claimed by firm as the basis of products or processes in order to minimize taxes.
-**Section 936(h)(3)(B)(i) implicitly includes trade-secrets through ‘invention, formula, process, design, pattern, or know-how”. Providing incentives for firms to keep trade-secrets directly induces the market failures than much innovation policy is intended to mitigate. It also has an extensive moral hazard issue.
+*Section 936(h)(3)(B)(i) implicitly includes trade-secrets through ‘invention, formula, process, design, pattern, or know-how”. Providing incentives for firms to keep trade-secrets directly induces the market failures than much innovation policy is intended to mitigate. It also has an extensive moral hazard issue.
 Question: To what extent should gross receipts from services that are directly related to a product that uses qualified property be included in the determination of qualified gross receipts?
-Answer: ===It depends. Innovation is invention followed by commercialization. To the extent that a service is associated (directly or indirectly) with the commercialization of an invention, incentivizing such a service with a tax deduction will incentivize innovation.===
+Answer: '''It depends. Innovation is invention followed by commercialization. To the extent that a service is associated (directly or indirectly) with the commercialization of an invention, incentivizing such a service with a tax deduction will incentivize innovation.'''
-**However, allowing deduction for associated services will induce moral hazard as it will be difficult, if not impossible, in practice to discern between directly associated services and indirectly associated or unassociated services.
+*However, allowing deduction for associated services will induce moral hazard as it will be difficult, if not impossible, in practice to discern between directly associated services and indirectly associated or unassociated services.
-**Correctly allocating value (for example between services associated with externality-generating innovations and externality-less innovations) is highly problematic. See below.
+*Correctly allocating value (for example between services associated with externality-generating innovations and externality-less innovations) is highly problematic. See below.
-**Weighting deductions by R&D expenditure disincentivizes the creation of a market for ideas, where many participants act as intermediaries.
+*Weighting deductions by R&D expenditure disincentivizes the creation of a market for ideas, where many participants act as intermediaries.
 Question: What would be the appropriate approach in determining the expenses properly allocable to innovation profits? Should the proposal just include authority for the Secretary to adopt allocation rules or is more specific guidance necessary?
-Answer: ===There is no appropriate approach, save as in very in specific instances, nor are there any well-founded rules for the Secretary to adopt. It is essentially impossible to design welfare-maximizing rules that have generally applicability for ‘other dispositions’. ===
+Answer: '''There is no appropriate approach, save as in very in specific instances, nor are there any well-founded rules for the Secretary to adopt. It is essentially impossible to design welfare-maximizing rules that have generally applicability for ‘other dispositions’.'''
-**Allocating value to single component products is feasible. Many pharma products are associated with single patents, or a small number of patents all held by a single manufacture. One can deduct manufacturing and other expenses at cost (one can assume that these are essentially competitively provided and so accrue no value beyond cost) to calculate component value. IP is estimated to account for 80% of value in some pharma. However, R&D tax credits already incentivize this activity.
+*Allocating value to single component products is feasible. Many pharma products are associated with single patents, or a small number of patents all held by a single manufacture. One can deduct manufacturing and other expenses at cost (one can assume that these are essentially competitively provided and so accrue no value beyond cost) to calculate component value. IP is estimated to account for 80% of value in some pharma. However, R&D tax credits already incentivize this activity.
-**Using bargained value as a measure of allocable value is straight-forward.  Thus patent licenses (even for portfolios), as well as infringed settlements bargained through the courts) could be rewarded by new legislation.
+*Using bargained value as a measure of allocable value is straight-forward.  Thus patent licenses (even for portfolios), as well as infringed settlements bargained through the courts) could be rewarded by new legislation.
-**Allocating value efficiently to components of a multi-component product (‘other dispositions’) is, in general, an extremely difficult problem in economics.
+*Allocating value efficiently to components of a multi-component product (‘other dispositions’) is, in general, an extremely difficult problem in economics.
-***Suppose that two firm’s patents are used to make a product and that the patents are complementary: one alone would make a product with $10 value but together they make a product with $40 value. How do you allocate the $20 complementarity created between the two of them?
+**Suppose that two firm’s patents are used to make a product and that the patents are complementary: one alone would make a product with $10 value but together they make a product with $40 value. How do you allocate the $20 complementarity created between the two of them?
-**Given information asymmetries between the firm and the tax collector, any allocation of value will lead to moral hazard.
+*Given information asymmetries between the firm and the tax collector, any allocation of value will lead to moral hazard.
-***Patents on ‘valueless’ inventions will be sought. Suppose that a firm can build a component using public domain knowledge or pursue an almost identical method that embodies the tiniest and least useful of inventive steps but that could be patented. As the patent would qualify the firm for a tax deduction on some allocation of the product’s value, the firm should pursue the patent.
+**Patents on ‘valueless’ inventions will be sought. Suppose that a firm can build a component using public domain knowledge or pursue an almost identical method that embodies the tiniest and least useful of inventive steps but that could be patented. As the patent would qualify the firm for a tax deduction on some allocation of the product’s value, the firm should pursue the patent.

@@ Line 1: / Line 1: @@
-=Executive Summary=
+===Executive Summary===
 The Act, as written has a broad scope in terms of qualified property and gross receipts, and has three potential normative economic justifications.
@@ Line 11: / Line 11: @@
 Each rational only applies if qualified property is reduced to just patents. Including film and video, computer software, and trade-secrets in the Act drastically undermines it. Moreover, implementation under any rational is infeasible for gross receipts from ‘other dispositions’, particularly the sale of complex products that embody a great deal of intellectual property.
-Economic Foundations
+===Economic Foundations===
 Innovation suffers from market failure due to information problems and positive externalities. As such, we expect innovation to be underprovided by private firms, relative to social optimal levels. Policy to increase innovation, like patent policy and R&D tax credits, may still not increase innovation to optimal levels. Thus Innovation Tax Boxes could have a role to play.
@@ Line 25: / Line 25: @@
 This final economic justification is very attractive, at least if the Act could be realigned to it. However, one immediate issue would be whether or not the deduction should be weighted by R&D expense. Specialization would require entities that do not conduct R&D. But this may encourage another kind of moral hazard: abuse of patents and “trolling” behavior
-Questions and answers
+===Questions and answers===
 Question: The proposal includes a broad definition of “qualified property” for purposes of determining qualified gross receipts.  Is that the appropriate scope of intellectual property that should qualify for the deduction?
-Answer: No. Any scope beyond just patents has little if any normative economic justification. Even patents suffer from a moral hazard issue.
+Answer: ===No. Any scope beyond just patents has little if any normative economic justification. Even patents suffer from a moral hazard issue.===
-•	There is no market failure associated with films and video tape.
+**There is no market failure associated with films and video tape.
-•	There is limited (if any) market failure associated with closed-source computer software. Unless an outsider can review the source, the release of a piece of closed-source software does not provide information about the nature of the invention, save as through its observable functionality, and so cannot generate positive externalities.
+**There is limited (if any) market failure associated with closed-source computer software. Unless an outsider can review the source, the release of a piece of closed-source software does not provide information about the nature of the invention, save as through its observable functionality, and so cannot generate positive externalities.
-•	Incentives for either computer software or patents creates a moral hazard problem. Trivial code or patents, that do not constitute true innovation, will be claimed by firm as the basis of products or processes in order to minimize taxes.
+**Incentives for either computer software or patents creates a moral hazard problem. Trivial code or patents, that do not constitute true innovation, will be claimed by firm as the basis of products or processes in order to minimize taxes.
-•	Section 936(h)(3)(B)(i) implicitly includes trade-secrets through ‘invention, formula, process, design, pattern, or know-how”. Providing incentives for firms to keep trade-secrets directly induces the market failures than much innovation policy is intended to mitigate. It also has an extensive moral hazard issue.
+**Section 936(h)(3)(B)(i) implicitly includes trade-secrets through ‘invention, formula, process, design, pattern, or know-how”. Providing incentives for firms to keep trade-secrets directly induces the market failures than much innovation policy is intended to mitigate. It also has an extensive moral hazard issue.
 Question: To what extent should gross receipts from services that are directly related to a product that uses qualified property be included in the determination of qualified gross receipts?
-Answer: It depends. Innovation is invention followed by commercialization. To the extent that a service is associated (directly or indirectly) with the commercialization of an invention, incentivizing such a service with a tax deduction will incentivize innovation.
+Answer: ===It depends. Innovation is invention followed by commercialization. To the extent that a service is associated (directly or indirectly) with the commercialization of an invention, incentivizing such a service with a tax deduction will incentivize innovation.===
-•	However, allowing deduction for associated services will induce moral hazard as it will be difficult, if not impossible, in practice to discern between directly associated services and indirectly associated or unassociated services.
+**However, allowing deduction for associated services will induce moral hazard as it will be difficult, if not impossible, in practice to discern between directly associated services and indirectly associated or unassociated services.
-•	Correctly allocating value (for example between services associated with externality-generating innovations and externality-less innovations) is highly problematic. See below.
+**Correctly allocating value (for example between services associated with externality-generating innovations and externality-less innovations) is highly problematic. See below.
-•	Weighting deductions by R&D expenditure disincentivizes the creation of a market for ideas, where many participants act as intermediaries.
+**Weighting deductions by R&D expenditure disincentivizes the creation of a market for ideas, where many participants act as intermediaries.
 Question: What would be the appropriate approach in determining the expenses properly allocable to innovation profits? Should the proposal just include authority for the Secretary to adopt allocation rules or is more specific guidance necessary?
-Answer: There is no appropriate approach, save as in very in specific instances, nor are there any well-founded rules for the Secretary to adopt. It is essentially impossible to design welfare-maximizing rules that have generally applicability for ‘other dispositions’.
+Answer: ===There is no appropriate approach, save as in very in specific instances, nor are there any well-founded rules for the Secretary to adopt. It is essentially impossible to design welfare-maximizing rules that have generally applicability for ‘other dispositions’. ===
-•	Allocating value to single component products is feasible. Many pharma products are associated with single patents, or a small number of patents all held by a single manufacture. One can deduct manufacturing and other expenses at cost (one can assume that these are essentially competitively provided and so accrue no value beyond cost) to calculate component value. IP is estimated to account for 80% of value in some pharma. However, R&D tax credits already incentivize this activity.
+**Allocating value to single component products is feasible. Many pharma products are associated with single patents, or a small number of patents all held by a single manufacture. One can deduct manufacturing and other expenses at cost (one can assume that these are essentially competitively provided and so accrue no value beyond cost) to calculate component value. IP is estimated to account for 80% of value in some pharma. However, R&D tax credits already incentivize this activity.
-•	Using bargained value as a measure of allocable value is straight-forward.  Thus patent licenses (even for portfolios), as well as infringed settlements bargained through the courts) could be rewarded by new legislation.
+**Using bargained value as a measure of allocable value is straight-forward.  Thus patent licenses (even for portfolios), as well as infringed settlements bargained through the courts) could be rewarded by new legislation.
-•	Allocating value efficiently to components of a multi-component product (‘other dispositions’) is, in general, an extremely difficult problem in economics.
+**Allocating value efficiently to components of a multi-component product (‘other dispositions’) is, in general, an extremely difficult problem in economics.
-o	Suppose that two firm’s patents are used to make a product and that the patents are complementary: one alone would make a product with $10 value but together they make a product with $40 value. How do you allocate the $20 complementarity created between the two of them?
+***Suppose that two firm’s patents are used to make a product and that the patents are complementary: one alone would make a product with $10 value but together they make a product with $40 value. How do you allocate the $20 complementarity created between the two of them?
-•	Given information asymmetries between the firm and the tax collector, any allocation of value will lead to moral hazard.
+**Given information asymmetries between the firm and the tax collector, any allocation of value will lead to moral hazard.
-o	Patents on ‘valueless’ inventions will be sought. Suppose that a firm can build a component using public domain knowledge or pursue an almost identical method that embodies the tiniest and least useful of inventive steps but that could be patented. As the patent would qualify the firm for a tax deduction on some allocation of the product’s value, the firm should pursue the patent.
+***Patents on ‘valueless’ inventions will be sought. Suppose that a firm can build a component using public domain knowledge or pursue an almost identical method that embodies the tiniest and least useful of inventive steps but that could be patented. As the patent would qualify the firm for a tax deduction on some allocation of the product’s value, the firm should pursue the patent.

← Older revision		Revision as of 22:25, 12 November 2015
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−	===Executive Summary===	+	=Executive Summary=

	The Act, as written has a broad scope in terms of qualified property and gross receipts, and has three potential normative economic justifications.		The Act, as written has a broad scope in terms of qualified property and gross receipts, and has three potential normative economic justifications.