Kill Patents, Save Innovation?

The patent system is “a real chaos”. Its faults were laid bare yesterday in an extensive New York Times article, which quickly reached the “most emailed list” (The Patent, Used as a Sword; and see Melissa Schilling’s review). But the same article also hedged by reminding us “patents are vitally important to protecting intellectual property”. But is intellectual property really essential for innovation? For an answer, look just a little past commercial software and you will see vast open collaboration without patents or copyright. Wikipedia, an open initiative, answers many of our questions. Open source software such as Linux and Android power most commercial websites and mobile devices, respectively. In myriad forums, mailing lists and online communities, users contribute reviews, provide solutions, and share tips with others. Science has been progressing by enlisting thousands of volunteers to classify celestial objects and decipher planetary images. Innovation without patents is real. Researchers estimate that open collaboration and user innovation bring more innovation than than the patented kind. Our legal and commercial system can do more to encourage it.


19 Comments on “Kill Patents, Save Innovation?”

  1. I don’t think software patents shouldn’t exist, but the level that they are now is truly absurd. Big companies are essentially using it as a sword to kill off smaller competitors and maintain their monopoly (MPEG-LA anyone?).
    This goes completely against what patents are supposed to do- encourage innovation, not monopoly.
    I would vastly reduce the number of things that could be patented. For example, how on earth do the trolls at MPEG think they can sue a technology (VP8/WebM) that was created independently of themselves? Can no one make a codec without breaking their ridiculous patents?

  2. sslevine says:

    You have an excellent point there, penguincampaigner. To gain a perspective, we should look beyond the commercial software industry. Unlike software designers, fashion designers have no patents to protect them, not even copyright for their garments. Does the lack of intellectual property hurt the fashion industry or did it spur creativity, season after season?

    • I’m not really sure why fashion and software development, or writing novel, is any different.
      My bet is that fashion designers, or more specifically, the corporations that employ fashion designers, don’t have the ability to create monopolies.
      In any case, book patents work differently from software patents. With a book, you can’t, say, copy an exact character. But you can make a book that has a concept similar to another. The same works with fashion- there are lots of similar designs, but they are all unique. Software patents on the other hand, are much more restrictive, and software is different from fashion and novel writing that you can’t wear something only from one designer or only read from one author, but you can use software from only one developer (like, say, Microsoft).

    • Corey says:

      Design investments are not that large (relatively) and, certainly, not sunk.

  3. sslevine says:

    That’s a good point! Software patents, and many “business method” patents, are extremely broad in scope and vague in language. Somebody even won a patent on “a method for exercising cat”, seriously (http://j.mp/SnYbKY). This vagueness allow companies to attack competitors who attempt to innovate in the same area. The article describes how expensive law suits forced a company to sell itself to a competitors, even if it eventually won in court.

  4. Corey says:

    Patents are critical for rapid innovation. Companies would not take the risk to invest in innovative products if they could not insulate them selves with an isolating mechanism to fend off imitators. Software industry is not the only industry that demands this type of strategy; in fact, any business that requires a large fixed cost investment, which are sunk, will demand an isolating mechanism to protect their venture (pharmaceutical and biotech industries).

    Additionally, there are several issues with using crowdsourcing platforms, such as Wikipedia, as a counterexample to the necessities of patent protection. Foremost, Wikipedia has positive feedback loops (i.e. network effects) acting as an isolating mechanism. I mean, who the hell is going to try and rebuild Wikipedia…the cost would be astronomical. The network effects are too strong and positive. Linux and other open source platforms took decades to reach both the quality and reliability its users enjoy today (for the obvious reasons). Also, Android serves an ecosystem of hardware and software which allows it to generate revenues.

    The second issue with using crowdsourcing platforms as an example is that they are notoriously difficult to monetize. Imagine if Wikipedia was to decide to sell advertisement on its website starting tomorrow; how would they compensate all the individuals who have contributed to building its vast content with out a penny for compensation? Not doing so would certainly alienate many of the contributors. I will admit that Threadless did do a good job of monetizing on crowdsourcing, but by no means are they a Wikipedia with software as their main platform…they sell durable goods.

    I do think that there is room for innovation without patents, however, much work is needed in figuring out how to properly monetize on such platforms, which will help in accelerating their development. However, there is no denial of the value that these platforms create for societal welfare and that they must be respected and supported (I am a long-time donor to Wikimedia foundation and think that they are doing great things).

  5. sslevine says:

    I have difficulties following the logic of “large investments require monopoly”. If this were true, then any organization that requires high fixed cost to start — from an airline to a shipping company to a university — should be granted a monopoly. But, as we can see, many businesses thrive in transportation, oil exploration, car making and many other industries that require huge investments upfront.

    I can certainly understand why a business would benefit from a monopoly status, I can’t see how society benefits from it. And the patent system is meant to benefit society.

    • Corey says:

      Many of the investments that you mentioned are not necessarily “sunk” (which is a condition that I mentioned)…you can recover portion of the cost by selling the equipment and so forth. Drug manufacturers face this problem all the time. Consumers complain that cost of drugs is too high; what they don’t realize is that only one of 100 molecules makes it to the market. Without patent protection, pharmaceutical companies would not be inclined to investigate 100 molecules with the hope of one making it to the market and, then, have a generics manufacturer compete against them.

      • With the example given, a patent in the pharmaceutical industry could prevent another company from imitating their design, and thus not be able to compete with the company who invested all that money in their research.
        I have stated that I don’t believe all patents are inherently evil.
        However, the blogger did mention software patents, which in my opinion, are quite absurd. Above, I gave the VP8 vs H.264 example. To put it in the pharmaceutical context, that would be like having a large pharmaceutical corporation develop a fantastic pain killer. Let’s say that company had monopoly for years, because no one else was able to develop a competitive drug. But now, another company (Google) comes along and develops their own codec which is basically as good- but free.
        The competitor company (Google) did nothing wrong- they did their own research, and came up with a similar product (especially since the crazed MPEG-LA lawyers can’t claim they copied H.264, since H.264 is… Oh right, not open source).
        Yet the software patents could potentially claim that Google is infringing on their patents.
        So clearly, software patents don’t work like pharmacy patents do. In fact, they don’t work at all.
        The developers should be protected by their liscenses anyway- there is no need to introduce further patents. Else why do we have commercial software with mile long EULAs?

  6. sslevine says:

    This is a good example of the theory behind patents. Although society generally frowns on monopoly, in some cases society is willing to allow a monopoly in return for something. With patents, the theory requires that in return for a time-limited monopoly, the inventor provides a full disclosure of her invention, so that others can build on it (or imitate it, once the monopoly expires).

    But when it comes to software patents – does society benefit? The article questions whether the patents are really for novel ideas and whether the disclosure is detailed. It suggests that patents can stifle innovation. I added that society can enjoy at least some of the benefits of innovation even without providing a monopoly, as with the many fruits of open collaboration. I suggested that the our legal and commercial system should encourage it.

    • Corey says:

      I would like to point out that in the software business society does benefit from free proprietary products. For example, lite versions of various softwares. Though the strategic intent behind versioning is to lockin paying customers, it still satisfies societal welfare. My general point is that legal protection and other forms of isolating mechanisms are strategic tools that provides the underlying motivation for firms to take the risk of investing and innovating. I would also argue that patent can, in fact, push innovation. If everyone was able to copy one another, then we would have bunch of products (not all) that are mere clones of each other (which will hurt societal welfare). However, by protecting ideas, more cleaver firms are pushed to think outside the box and devise new (and sometimes better) ways of doing something, which in my opinion is the essence of innovation.

      I would agree with your assessment as well as the article that many patents are useless, ridiculous, or wasted (inventor sits on it and does not take it to market). Also, there is the horror of a patent holder getting into a long drawn out legal battle over an infringement with a larger more resourceful firm. I do believe that the legal cost associated with patent infringements should be on the shoulders of the infringer and not the patent holder. But all of this points to the fact that the legal system is in need of significant improvements and overhaul.

  7. Corey says:

    @penguincampaigner…I am not sure if I follow your Google example, but if “Google” created their own codec that (ultimately) infringes an existing codec, then they are in violation. And the only reason that Google would do this is because they want to piggyback on an existing format’s network effects and installed base. That is not fair to the original creators…they did all of the hard work and they deserve to have their work protected, regardless of whether Google gives away their new codec for free. Perhaps this would benefit society in the short-run since we are getting another freebee, but in the long-term firms would be less likely to invest in R&D fearing that they would never be able to make back their original investment (plus cost of capital, etc.).

    Like I mentioned several times, I do not think that it’s fair for big firms to bully smaller firms by engaging them in long drawn out (and wrongful) litigation…that’s simply evil. Nor is it fair for me to cover a Beatle’s song and make money (or, alternatively, give it away for free) without permission from the copyright holder. If I give my cover song away for free and the song is a hit, even though I don’t make money from it I still walk away with surplus. Perhaps, the surplus is in the form of (15 minutes of) fame and notoriety, which I can then leverage to release an original score for sale. Either way, I made money off of other individuals’ hard work and investments.

    Further, drug manufacturing and software development share a common theme in their economics: large upfront fixed cost (which is sunk) and negligible (or relatively small) variable cost. The economics of information goods (which pharmaceuticals is clearly not an information good) is a very interesting area of study and if you are interested in this area and have not read into it, I would refer you to Information Rules by H. Varian and C. Shapiro. One of the main strategic tools in this theory is using legal protection as a way to ensure that you can recapture your R&D costs. Some industries have done better than other in capturing surplus (software industry has done well, whereas the music industry continues to struggle).

    Lastly, patents on algorithms and backend stuff is the most frivolous things ever. Who cares how something is accomplished since there are (theoretically) infinite ways to write code to perform tasks. Design patents are more relevant and, in my opinion, should be issued to give the inventor protection within an industry application, but not across all industries. So, if I invent a unique way to package computers (such as Apple does), the design patent should not protect me in, let’s say, food packaging industry since I would not have anything to do with food in my business and no one would confuse my computers via its packaging with a box of pizza in the grocery store.

    • Uhm, no, you misunderstood the example.
      I said that Google developed their own codec. They did not infringe on MTrollies patent number whatever (or at least no sane person could claim so) because they developed their own codec independently from H.264 and MPEG-LA is just b**hurt that someone has come along to challenge their comfortable monopoly.
      To give an example, it would be like me making a song, offering it for free, and then some other more “mainstream” author claiming I’m breaking their copyright by creating a free song that is in the same genre as they are.
      That is the level of ridiculousness that MPEG’s patents are in.

      I might read those books actually, it’s an interesting subject I haven’t really considered much.

  8. stevepostrel says:

    The problem with trying to bracket off software as a separate area that would be held patent-free is that it would end up destroying all patents on machinery and processes, because most of these today are heavily dependent on unique software designs for their distinctive properties. My new chemical-coating machine, say, works differently from yours largely because it is programmed differently (although there may be complementary hardware variations to exploit the process). If we say that the software driving my machine is not patentable, then my machine innovation itself is not patentable.

    Patent lawyers, who are experts on the arcane and jesuitical distinctions that the law necessarily makes in patent cases, no doubt would chew me up for this horribly imprecise explanation, but the general idea is still correct. Should a process or product lose patentability simply because it is encoded in software instead of in gears and cams?

    It used to be said that math itself could not be patented and therefore algorithms couldn’t be patented. But a superior algorithm attached to a particular context of use–say, a new way to do signal processing–starts to look a whole lot like a physical electrical invention in that same domain. Does it matter whether the innovation is coded in software rather than physically embedded in a hard-wired circuit?

    These difficulties lead some to go for the let’s-just-get-rid-of-all-patents solution, but the pharmaceutical industry would have to be reinvented from scratch (with a long cessation of
    drug research) were that policy followed. Small inventors would be put out of business pretty much in every field. If excessive patenting is a problem, I would prefer to cut back the lengths of time for software patents, eliminate business process patents, go to loser-pays in patent litigation, and make patents easier to challenge on obviousness and prior art grounds.

    • sslevine says:

      This sounds like a perfectly reasonable solution. Patents are necessary, and even business method patents can be reasonable, but god is in the details. Some say that the patent office wasn’t playing its oversight role, so patents were issued for not so novel innovations, such as exercising a cat (http://j.mp/SnYbKY). The next question is, of course, how do we better organize the patenting process?

      • @sidwindcr says:

        It’s not just about software patents. A crucial reference here is Bessen and Meurer, 2008. The notion that patents exemplify “property” is crucially flawed by virtue of its enormous and irremediable ambiguity on the question of what constitutes tresspass. Copyright law is much better, and a patent law akin to copyright might be socially constructive, but the one we have is a disaster from the viewpoint of progress, bureaucratic costs, litigation costs etc.

  9. sslevine says:

    For those interested, this is the book:

    Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk
    James Bessen, Michael James Meurer
    http://books.google.com/books?hl=en&lr=&id=DLGWiySQRP4C&oi=fnd&pg=PA1&dq=Bessen+and+Meurer,+2008&ots=uSjKH_eDF0&sig=TBsIWHEas7utrFZ2xcA-AMF3N9c#v=onepage&q=Bessen%20and%20Meurer%2C%202008&f=false


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s