A paper co-written by Professor Lisa Ouellette titled “Beyond the Patents-Prizes Debate” which examines tax deductions and tax credits undertaken for R & D is reviewed in this Jotwell-Intellectual Property blog. 

In the 19th century, legal scholarship focused on legal doctrine. In the 20th century, legal scholars began to examine the policy effects of legal doctrine, paying particular attention to how changes in doctrine could yield better policies. Now, such policy-oriented approaches are cemented into nearly every U.S. law review article. Although this shift has in my view generally been beneficial, it still suffers from a doctrinal myopia: legal scholars usually write about only the swaths of law they know well, often overlooking other strands of law that are quite pertinent to the policy issues being addressed.

For example, although patent law scholars frequently opine about the nuances of patent doctrine and how changes in those nuances may affect innovation incentives, they have often ignored how other available policy tools—such as grants and government prizes—affect innovation. Although there is certainly law that deals with grants and prizes, it is rarely the subject of litigation and is fairly specialized (hence, occupying the minds of a small number of lawyers). None of it is taught in law schools. As such, law professors tend to know (and write) little about it.

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Oddly, none have explored in any detail the tax deductions and tax credits undertaken for R & D. Hemel and Ouellette make an impressive contribution by considering from a rigorous legal perspective this important—and otherwise overlooked—driver of innovation. This lacuna in the literature is even more shocking because, as the authors point out, the U.S. government spends tens of billions of dollars each year merely in R & D tax credits, plus surely tens of billions more in general deductions for R & D expenditures.

What is most valuable about Hemel and Ouellette’s paper is their “compare-and-contrast” analysis of the four main policy tools—patents, prizes, grants, and tax credits—used to promote innovation. Importantly, and in contrast with some recent works on prizes by others in the field, they properly recognize that there is generally “no free lunch” in the innovation game. As such, all of the policy alternatives tend to be costly.