AEIdeas

The public policy blog of the American Enterprise Institute

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Discussion: (18 comments)

  1. Janice Matchett

    “Basic truths of nature can’t be owned. …
    “For example, the human genome exists in every one of us, and is therefore our shared heritage and an undoubted fact of nature. Nevertheless 20 percent of the genome is now privately owned.

    The gene for diabetes is owned, and its owner has something to say about any research you do, and what it will cost you. The entire genome of the hepatitis C virus is owned by a biotech company. Royalty costs now influence the direction of research in basic diseases, and often even the testing for diseases. Such barriers to medical testing and research are not in the public interest.

    Do you want to be told by your doctor, “Oh, nobody studies your disease any more because the owner of the gene/enzyme/correlation has made it too expensive to do research?” …..

    ~ Michael Crichton – NYT 3/19/2006 “THIS ESSAY BREAKS THE [Patent] LAW” http://tinyurl.com/cd6j7nv

  2. “The case against patents can be summarized briefly: there is no empirical evidence that they serve to increase innovation and productivity, unless the latter is identified with the number of patents awarded – which, as evidence shows, has no correlation with measured productivity.”

    Right. Try raising money for a start-up (especially a non-software start-up) without patents or a patent strategy. And try innovating and commercializing without capital. Talk about a big company’s dream – you innovate and I steal it from you. Thanks!

    And I don’t know what you’re comparing it to because there have always been patent rights in the US. It is an original constitutional authority. But countries with weak or unpredictable patent rights, like India and China, often scare away investors and start-ups for fear of copying.

    There are a few other things that I don’t agree with in that sentence as well, but I don’t have all day. And that is just your first sentence. Your view on the subject seems rather simplistic and not very well thought out.

    1. I gave the impression that the quote is of Jimmy’s – not that he was “informed by it.” Whatever that means. In any event, my apologies for the confusion.

    2. Right. Try raising money for a start-up (especially a non-software start-up) without patents or a patent strategy. And try innovating and commercializing without capital. Talk about a big company’s dream – you innovate and I steal it from you. Thanks!

      That is the point. Small companies are prevented from innovation because they will be sued into oblivion by bigger players who use patent claims as weapons.

      1. That is not my point at all. But it is a consideration. Usually in those situations, both companies have patents and the small company sells out to the big company. Which is generally what most investors want anyway.

        1. Right. Try raising money for a start-up (especially a non-software start-up) without patents or a patent strategy. And try innovating and commercializing without capital. Talk about a big company’s dream – you innovate and I steal it from you. Thanks!

          It is only theft if ideas are real property and can be stolen. If I steal your car that means that you can’t use it. If I have and use the same idea as you there is nothing to stop you from using the idea. Do you really think that some small company will come along and develop the next smartphone when it has to worry about sued into oblivion for using gestures, a particular look, or whatever other stupid thing the courts have allowed someone to patent?

          Other than war, the patent system is the most destructive thing about government. And let me note that Jimmy is totally right about one thing. Even if we abandon the principled argument AGAINST patents, (and there is no principled argument FOR patents), the utilitarian argument cannot be supported by the evidence. It has been shown in study after study that patents stifle innovation, not encourage it. All they do is grant artificial state sanctioned monopoly that lower the overall standard of living by reducing supply.

          1. Why do your examples have to do with software when I specifically discuss “non-software?” You obviously haven’t considered what innovation occurs and how patents impact them beyond your phone. And by phone, I mean the final, end product – not the hardware components, etc. You opinion on patents is simplistic in the extreme.

          2. Why do your examples have to do with software when I specifically discuss “non-software?” You obviously haven’t considered what innovation occurs and how patents impact them beyond your phone. And by phone, I mean the final, end product – not the hardware components, etc. You opinion on patents is simplistic in the extreme.

            My arguments are about property and property rights. They can be applied to hardware, software, reputation rights, and whatever else you wish to defend. I am pointing out that the argument is false on all the bases.

  3. The case against patents can be summarized briefly: there is no empirical evidence that they serve to increase innovation and productivity, unless the latter is identified with the number of patents awarded – which, as evidence shows, has no correlation with measured productivity.

    That is true Jimmy; the studies show that patents stifle innovation. But that is a utilitarian argument that we do not even need to look at because there is no way to justify patent laws on principle. Ideas are not scarce resources, which is what property rights are designed to allocate. If I own a chair all that means is that you can’t use it without my permissions because there is only one chair. If you want to sit down you may have to purchase it from me or get another one somewhere. Ideas and knowledge are not like chairs. If you and I have the same idea both of us can use it. So can anyone else. I suggest a little bit of research by looking at something a bit more substantive than Fed papers that only look at utility.

    Against Intellectual Property (Free ePub version)

    1. Michael P Stein

      Ideas are not scarce resources. However, time and materials needed to validate the workability of the idea and turn it into a safe, marketable product are scarce resources. For some products such as pharmaceuticals they may be considerable. Patents protect inventors from free-riding competitors who need only pay manufacturing costs once the inventor starts to market the product, as opposed to the inventor who must pay development as well as manufacturing costs.

      The situation is much the same for authors who may spend years working on a manuscript. Copyright prevents free riders from using a scanner to create and sell copies and profit from the author’s labor without paying any compensation to the author.

      This is not to say that the current patent and copyright schemes are ideal; I’m only pointing out that inventors and authors often provide considerable labor and other resources in developing the invention or copyrighted work – labor that copyists free-ride on.

      1. Ideas are not scarce resources.

        Therefore they cannot be property. And as such they should not be allocated by providing someone with a monopoly on their use.

        However, time and materials needed to validate the workability of the idea and turn it into a safe, marketable product are scarce resources.

        Those materials are scarce resources. If they are stolen then you cannot use them and as such have recourse against anyone who steals them. Since you cannot control or sell time it would be difficult to claim that your time was stolen.

        For some products such as pharmaceuticals they may be considerable.

        They are considerable because the government is involved. And as I noted above, the government requires that companies and researchers disclose what they are working on. That makes it difficult because companies that want to copy the drugs can do so very easily and have a product available immediately as the patent expires. Those competitors find it easier to compete because they don’t have to figure out what you did and how you did it. And if the approval process is long and market penetration takes time the company could find that it makes little profit on its patented drug before prices collapse as generics enter the market. It would be better not to have the extensive monopoly approval process and not to have to disclose the company secrets.

        Patents protect inventors from free-riding competitors who need only pay manufacturing costs once the inventor starts to market the product, as opposed to the inventor who must pay development as well as manufacturing costs.

        Why should ‘inventors’ be protected? Why should a guy who filed first get a monopoly when someone else may have had the idea sooner and when much of the discovery was totally dependent on the ideas of other people to begin with?

        Most principled individuals would accept property rights in tangible goods. Since tangible goods are scarce a conflict can arise from their use. (Only one of us can drive the same car at the same time so we need to figure out rules that establish ownership.) But there is no conflict required over goods that are not scarce because they permit multiple users at the same time. Ideas are not scarce so they cannot be owned. If you want to make a profit from some process or formula keep it secret and charge what you can get away with until someone figure out how to make a better or cheaper product. If you still want to make money then you better work hard to improve and lower costs and stay ahead of the competitors. Free markets are not there to serve investors or workers. They are there to serve the consumer and it is the consumer who gets to decide who is worthy. If you want to be rich serve the consumer and keep improving. Stop looking for a government to give you monopoly protection.

        The situation is much the same for authors who may spend years working on a manuscript. Copyright prevents free riders from using a scanner to create and sell copies and profit from the author’s labor without paying any compensation to the author.

        Jane Austen’s novels are not protected. Why not simply put your name on them and pretend that you wrote them? People can already copy books using photocopiers. But they still prefer to purchase them and if an author has the correct pricing strategy s/he can do quite well without the copyright. Many authors give away some of their works for free as electronic books because they know that they will get more exposure and more paying readers in the long run. But note the problem that is caused by copyright laws. There are hundreds of great works that cannot be published because the publishers who received them can’t figure out who submitted them. There are hundreds of great concerts that were recorded that cannot be reproduced because the record companies can’t figure out who the third guitar or the trumpet player was when the performance was recorded. There are authors who are prohibited from creating derivative works of their own books.

        This is not a unsolvable problem as long as we stick to using words that mean what they are supposed to mean. There is no such thing as intellectual property because ideas and knowledge is not property once anyone else finds out. They are not scarce and there is no need to make them scarce by using the state to grant monopoly privileges.

      2. This is not to say that the current patent and copyright schemes are ideal; I’m only pointing out that inventors and authors often provide considerable labor and other resources in developing the invention or copyrighted work – labor that copyists free-ride on.

        If you are going to use a utilitarian argument you better see if the empirical data supports it. Almost all of the studies that I have seen show that patent laws reduce innovation and reduce job creation, not the other way around. Artificially created monopolies are not a good idea. It is time to stop arguing for them both on principle and on utilitarian grounds.

  4. Michael P Stein

    The one-click shopping patent is a classic example of a defect of the current patent system: the lawyers and adjudicators are seldom technical experts in their own right, and may not reach the correct decision about novelty and/or obviousness. As a software person myself, both I and every other software person I know are flabbergasted that one-click ordering could be considered a non-obvious innovation qualifying for patent protection.

    I will be interested to see if Mr. Tabarrok has any concrete proposals about how to solve the issue of products such as pharmaceuticals, where the inventor must spend significant time and/or money experimenting before finding the solution, but copycat producers can get a free ride on the inventor’s development and regulatory approval costs, quite possibly leaving the inventor at a competitive disadvantage.

    1. Especially when the innovator is a small company and the copycat is a big company. The small company will have zero competitive advantage and will gain nothing from his efforts.

      And this is generally how innovation works these days. Most big companies (especially non-software companies) are too big and bureaucratic to innovate, relying heavily on small, dynamic companies to come up with the new ideas.

      Then the big companies acquire the intellectual property (patents and know how) of the small company. Very few small companies have plans or the resources (manufacturing, marketing, distribution infrastructure) to take their product to global commercial production. If the small companies don’t have a way to protect themselves, nobody will invest in them, and they won’t be able to innovate.

      1. The small company will have zero competitive advantage and will gain nothing from his efforts.

        In the free market a small company will do fine. It is the current patent and copyright regimes that put up barriers at this time.

        And this is generally how innovation works these days. Most big companies (especially non-software companies) are too big and bureaucratic to innovate, relying heavily on small, dynamic companies to come up with the new ideas.

        No. The small companies usually can’t do much because they do not have a portfolio of patents that allow them to use the porcupine defense even as they attack small competitors in the court system.

        Then the big companies acquire the intellectual property (patents and know how) of the small company. Very few small companies have plans or the resources (manufacturing, marketing, distribution infrastructure) to take their product to global commercial production. If the small companies don’t have a way to protect themselves, nobody will invest in them, and they won’t be able to innovate.

        As you point out, it is the current system of IP laws that make it hard for the small players to innovate and compete. They would do much better in a free market.

    2. ” quite possibly leaving the inventor at a competitive disadvantage.”

      Understatement of the century.

      “The one-click shopping patent is a classic example of a defect of the current patent system”

      Instead of making minor corrections, particularly in the software/business method area, people want to go thermonuclear on the entire patent system. Which would be a disaster.

      I think that the recent change from first to invent to first to file is already a huge gift from the government to big business. Now small companies have to worry about reducing their ideas to practice and raising funds to file patent applications way faster than they would like. And have to be much more worried about who they talk to, whether they are talking under NDA, etc. in raising capital or partnering when they are trying to reduce their invention to practice.

      Removing patent protection would almost completely destroy the non-software start up company’s access to capital and, therefore, would completely destroy the non-software start-up.

      1. Instead of making minor corrections, particularly in the software/business method area, people want to go thermonuclear on the entire patent system. Which would be a disaster.

        Let us dispense with the theology please. Saying something does not make it true.

        …we can point out that the benefits stressed by the pro-patents camp turn out, on closer inspection, to be smaller than conventionally assumed, while there are many costs involved that can easily be over­ looked. Thus, the cost-benefit relationship is not as favorable as the pro-patent camp would have us believe. At the very least, we should oppose current efforts to broaden the scope of patent and copyright laws until a stronger case can be made that the benefits do, indeed, exceed the costs.

        As Cole points out in the paper cited above, companies would have a larger incentive to innovate if they did not have a nearly two decade monopoly on a product. Prusak did not find a valid justification on utilitarian grounds. Of course, we have plenty of authors who have rightfully pointed out that patent laws began when the English crown wanted to raise funds by giving monopoly protection to a privileged group or individuals. Current laws do exactly the same thing and would not exist in a free market system.

    3. I will be interested to see if Mr. Tabarrok has any concrete proposals about how to solve the issue of products such as pharmaceuticals, where the inventor must spend significant time and/or money experimenting before finding the solution, but copycat producers can get a free ride on the inventor’s development and regulatory approval costs, quite possibly leaving the inventor at a competitive disadvantage.

      First of all, innovation does not require patent protection. There are plenty of research institutions and universities that would continue to do research. Some researchers care about the solution and not about the money. They will let others know about their research so that you could have an open-source a solution.

      http://www.ted.com/talks/jay_bradner_open_source_cancer_research.html

      And there are always plenty of bright and curious individuals who will tinker by experimenting in the hope of getting rich by finding something ahead of the competition and getting a good start. If you come to the market first it is very possible to make huge amounts of money before the supply goes up sharply and the product becomes commoditized. You win and get rich while the consumer also wins and gets cheaper products sooner.

      Second, in a free market you do not need a very expensive process such as the one that FDA uses to develop drugs. Note that the FDA process is very long and the companies are required to disclose their findings very early in the process. This means that after spending billions on research the approval is granted far too late in the game to allow them much time to make profit from the patent protection. (Approval usually takes more than a decade.) By the time the patent runs out a year or two after the companies begin to make money on the drug the generics have their version ready, thanks to the requirement disclosure and nobody really wins. While the pharma companies make money the huge approval and marketing costs are hard to recoup unless they get the FDA to approve some minor change that they can get doctors to prescribe to patients that have insurance. In a free market the generic would be prescribed because there would be no third party payment that covers a drug that does essentially the same thing but costs 5 to 10 times more.

      Note that we have not even come to the principled argument, which says that ideas are not scarce and therefore not property. If you want to keep an idea to yourself feel free to keep it a secret. But once it is out when another individual uses that idea you are not prevented from using it as well. Therefore, there is no theft.

      This whole issue becomes simpler if people paid attention to the meaning of words.

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