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writing for godot

When Patents and the Economy Collide

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Written by Scott Dunn   
Sunday, 20 February 2011 03:58
Last week we saw news of President Obama having dinner with, among many others, the leaders of Google, Facebook and notably, Apple. In all, there were about a dozen business leaders attending the event. According to reports in anticipation of the dinner, one of the topics of discussion is a desire to accelerate the patent application process. The assumption here is that patents that are easier and faster to get will increase the incentive for innovation and that will grow the economy.

The United States Constitution grants Congress the power to establish a patent system to encourage the advancement of the sciences and the arts - a power which Congress may choose to use or not. Anyone familiar with the current business environment in America can see that instead of advancing the sciences and the arts, patents are being used to disrupt the business of others and even to discourage research. One look at the cell phone industry shows us how all the major players are squabbling over patents through patent infringement suits. Last year a federal judge struck down the patents on the BRCA1 and BRCA2 genes that indicate a predisposition for breast cancer. Why? The patents were found to lay claim natural phenomenon and they were stifling research.

Now if patents stifle research, they can also stifle innovation. To put it differently, patents do not equal innovation, particularly when they involve articles of nature like genes and molecules that are naturally occurring. When it comes to technology, patents should not apply to math, and that means software, yet people still apply for software patents. As Pamela Jones at groklaw.net so politely puts it, “Software and patents need a divorce.” Generally, patents utterly fail at encouraging innovation because once a patent issues, it becomes an infringement against personal freedom. Every patent issued is one more thing you can’t do with your own property without paying a royalty. And that infringement multiplied by a million patents will ultimately reduce the rate of innovation. This is the social costs of patents that is rarely considered in litigation or even in assessment of a patent application.

The real innovation in America occurs without patents. It occurs out of necessity, frustration, laziness, or creativity. The real inventors of America cannot be burdened with the task of doing patent searches before they can use a new idea as the foundation of a new business. The most successful ideas are successful because of brilliant execution, which is also known as the “first mover advantage.”

The first mover advantage is exemplified in businesses that started and thrived without patent protection. Google, Facebook and even Apple started without the protection of patents. Even McDonalds got its start without patent protection. All of these companies are examples of brilliant execution.

In recent years, criticism has been mounting against the US Patent and Trademark Office with regard to their selection criteria for patents and the quality of the patents they issue. They are all about customer service, but unable to deliver. The backlog of patent applications is approaching 900,000 with an average pendancy of a patent approaching 34 months. 34 months! That is a long time to wait in a fast moving economy where waiting a month could cost you your business. Why would anyone wait? How about 20 years of bliss owning and collecting royalties for an idea?

The patent office earns it’s money through application fees so, the more the merrier. But they are understaffed as Congress has sought to make them more “efficient” by making them “self-sufficient” through application fees. There is a problem with this model. Currently, the patent office is very permissive in order to generate fees, and that is a tragedy of the commons. With permissive patent grants comes a long line of applicants that have literally buried the patent office and a patent thicket that creates a minefield for new businesses.

Consider the complexity of the technology you use every day and you will see how hard it is to determine if an invention is worth a patent on an idea. The average time spent by a patent examiner on a single patent is about 20 hours. I doubt there is anyone even remotely smart enough to determine the novelty of a complex invention in 20 months, let alone 20 hours.

Given this environment, you can be sure there are people gaming the system. The late Jerome Lemelson with his barcode and machine vision patents is the most famous example of gaming the system. Lemelson had perfected a way to file improvement patents over existing patents to keep the original patent alive. In a recent case involving some of the Lemelson patents, the court finally invalidated patents that Lemelson had been prosecuting for over 50 years. During that time, Lemelson had been terrorizing businesses everywhere for their research into and practical use of barcodes and machine vision. He (and his successors) extracted more than $1.5 billion dollars from competitors and customers over these patents. How many jobs did Lemelson create? Unless you’re a lawyer, probably not very many.

Patents create unemployment by reducing the number of people who can use an idea. Patents can make people afraid to start a business for fear of being sued. Patents can be used to shakedown businesses, depriving them of capital needed to hire or maintain employees. And quite simply, patents can be used to prevent the use of an innovative idea.

People in favor of patents will be glad to tell everyone that copying ideas is “stealing”. Nothing could be farther from the truth. Copying ideas is the natural thing for man to do. Copying ideas is a process that occurs everywhere in nature. One very good example in nature is the herd instinct. When the leader of a herd turns left, everyone else follows. A trail of ants is evidence of the sharing of ideas among the ants. Even genes are copied between animals. Imagine what would happen if there were lawsuit over the copying of genes. Oh, wait. That would be Monsanto suing farmers for saving their seed, or growing crops that had been pollinated with pollen from patented genetically modified crops that were planted upwind.

Patents are supposed to encourage disclosure of an invention so that everyone will benefit from it. Given the technology available today, reverse engineering an invention is a lot easier than it has ever been before. Just ask China. What about big businesses stealing ideas from the little guy? I don’t know. Do you really think the patent system stops them from doing it? How about if smaller companies were able to use ideas from big businesses? Does the current system stop them? Probably not. Smaller businesses are often faster to improve ideas than larger businesses can, anyway. At worst, it’s a healthy exchange of ideas.

And then there are patents on software. Software companies are patenting ideas in software to establish their own private monopoly in their field of interest and work. With software patents, there could be a thousand ways to reach the claims in a patent. That won’t matter because all it will take to stop a company in its tracks is a single letter of warning demanding royalties or risk a lawsuit costing a few million, regardless of the actual value or validity of the patent. That would be math you can’t use - unless you pay for a license.

Software doesn’t need patents to thrive. Just look around you and you will see that every time you use the Internet, you’re using Linux, software that uses no patents for protection. Linux encourages you to copy and share ideas by using, studying and improving Linux. Android, the cell phone operating system, uses Linux at its foundation, a free and open source operating system. Sales of Android phone were double that of the iPhone in the 4th quarter of 2010. No patent protection there.

Yet, Apple, Oracle and Microsoft would all like to sue Android out of existence with their patents. At the very least, they want to impose a cost on Android that would make it easier for them to compete against it. I guess they’re not in favor of creating high paying jobs. To them, patents seem to make a nice substitute for customer service. Over the last 20 years, numerous studies have shown that patents tend to substitute for research and development, too. “Research and development”? Isn’t that “innovation”? Making patents easier to get and increasing the strength of the patents laws is a train-wreck of intellectual property that has exacted significant damage to our economy.

If we want to create jobs, we need to make patents very hard to get so that we only honor truly novel inventions, or in the alternative, we could consider abolishing patents altogether. Fewer patents increase the freedom businesses need to tinker and experiment for the next great thing. That will, more than anything else I can think of right now, help American business to focus on execution, customer service and innovation.
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0 # mrgaribaldi2263 2011-02-23 20:29
By the way, just to add to the discussion, I found this nifty scientific paper on Groklaw.net.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1746343

It's called, "Intellectual Property’s Great Fallacy" by Eric E. Johnson. It's only 11 pages, but a nice read all the same.
 

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