Nobel Winning Economist Rips Apart Innovation Harming Patent Process

from the he's-got-a-bit-of-credibility dept

For a while now, we've been pointing out how the misuse of a badly implemented patent system is doing more to harm innovation than to help it. The problems are pretty clear to many people. Patents grant a monopoly -- which is usually quite dangerous to innovation. When the patent system in the US was first laid out by Thomas Jefferson, he noted this problem and believed that patents should only be granted in the rarest of circumstances. Second, patents reward invention, not innovation -- and it's innovation we should be rewarding. It seems that those of us who support fairly massive patent reform may have some pretty strong support from someone who clearly understands these issues. Boing Boing points to a terrific column by Nobel prize winning economist Joseph Stiglitz, who anyone who ever learned about adverse selection and moral hazard should thank for the concepts. Stiglitz's column clearly points out why the patent system is problematic and how it's being abused not just to harm innovation, but to leave many people around the world without medication that would save their lives.

He explains how the idea that innovation wouldn't occur without patents is completely false: "In fact, many of the most important ideas - for example, the mathematics that underlies the modern computer or the theories behind atomic energy or lasers - are not protected by intellectual property." He explains how patents create monopolies which throw up barriers to innovation: "an intellectual property regime rewards innovators by creating a temporary monopoly power, allowing them to charge far higher prices than they could if there were competition. In the process, ideas are disseminated and used less than they would be otherwise." He also discusses even the fear of patents being stockpiled can harm innovation: "the fear that some advance will tread on pre-existing patents, of which the innovator may not even be aware - may also discourage innovation. After the pioneering work of the Wright brothers and the Curtis brothers, overlapping patent claims thwarted the development of the airplane, until the United States government finally forced a patent pool as World War I loomed." He then goes on to discuss the problem of determining obviousness for a patent: "The creation of any product requires many ideas, and sorting out their relative contribution to the outcome - let alone which ones are really new - can be nearly impossible." He also agrees that many of our patent laws are more influenced by powerful lobbyists, rather than what's best for the people: "I served on the Clinton administration's Council of Economic Advisors at the time, and it was clear that there was more interest in pleasing the pharmaceutical and entertainment industries than in ensuring an intellectual-property regime that was good for science, let alone for developing countries." In many ways, he's simply saying what many of us have been saying for years -- but he does so with obvious credibility and puts it all down in a very easy to understand manner.



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  1.  
    identicon
    Dan Neuman, Aug 17th, 2005 @ 9:39am

    Protecting IP through Prior Art

    Xerox used to (and maybe still do) publish journals of interesting innovations from their scientists and engineers that were useful to them, but not different enough to warrant patenting.
    While the journals provided a means of moving ideas around the company, it may also have given them protection if another company tried to later patent the technique, since Xerox could claim prior art on the patent.
    Instead of stockpiling patents, the way Microsoft has started doing, companies could much more cheaply just publish the ideas and save themselves a lot of money in lawyer and patent fees. If you are just trying to protect yourself from other patent stockpilers, I think this would be a better method.

     

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  2.  
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    Jeff, Aug 17th, 2005 @ 10:30am

    Wrong. Try again.

    I stopped reading after the massive error in the first sentence. Patents do not grant a monopoly -- at all. Patents grant a limited monopoly that expires after twenty years. That is why you will never see an antitrust case based solely on having patents. Once twenty years pass, the competitor can copy the system exactly.

    The reason that the patent system was founded was so that it forces companies to publicly disclose what they are doing in exchange for 20 years of exclusivity of a product. Without patents, everything would be a trade secret and innovation/invention would slow -- period. As a reward for sharing knowledge, you get 20 year exclusivity.

    Now you come to the idea of litigation. For big business, IP litigation is a business expense -- period. Big companies rarely complain about patents. I mean yes, IBM gets sued almost daily on patents, but they make $3 billion a year on licenses. That alone motivates IBM to innovate and disclose. And, big companies that are sued by other big companies just cross license -- no big deal.

    Turning to the sole inventor ... one patent can easily turn into 8 figures of income ... regardless if a company is started or not.

    The main problem is the lack of education about patents and the common misconception that they hurt things. The truth of the matter is that IP is an industry in itself, the loss of which you would see a decline in technology development. This can be seen in the least developed nations. Whenever Big Pharma gives up their patent rights to help the country (which the U.S. is against because then under GATT any country can raise tarriff's on the nation's products for that nation not following GATT IP laws) ... Big Pharma loses money. If 40% of Big Pharma revenue goes back into research ... Big Pharma just lost a large amount of reserach money by losing patent rights.

    FYI to Dan's comments. The IEEE is IBM's way of disclosing subject matter it has decided not to patent (i.e., to add invalidating prior art to the publication stream).

     

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  3.  
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    Jeff, Aug 17th, 2005 @ 10:46am

    Re: Wrong. Try again.

    There are a number of cases that talk about how patents are not monopolies but limited monopolies that embody the principles of patents originally laid down by Jefferson etc. Just do a lexis search.

    Also, I think Jefferson's first patent (yes, he was an inventor) was how to pull a boat upstream using a mule and a rope ... so let's cut the whole innovation v. invention argument.

    The main problem with the system is that it is the only government agency other than the IRS that makes money. Thus, the system is being run like a business ... costs are constantly rising and inventions are constantly being restricted out so that multiple applications have to be filed. This means only one thing ... corporations can file more patents than sole inventors. Right now, a sole inventor has to pay roughly $5,000 just in fees during the 20 year life of a patent. If you get an attorney (which you really must do as no matter what you think, you don't know anything if you're a sole inventor) ... add another $15,000 on the tab on the mix.

    The one thing the USPTO should also do is use more publications to invalidate instead of just patents. Publications, the EPO database, and the JPO database, should all be used more frequently by Examiners.

     

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  4.  
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    Mike (profile), Aug 17th, 2005 @ 10:56am

    Re: Wrong. Try again.

    I like how you criticize us for being uninformed after admitting that you wouldn't even read the article.

    Yes, the patent is for a limited time, but it IS a monopoly, and monopolies DO slow down innovation. Indeed, there are benefits to having companies disclose information that can be used by others -- but it seems like that is *rarely* the benefit of the patent system any more.

    Your argument that IP is a big industry and changing the patent system would harm the economy is about as silly as saying the same thing about organized crime. It's big business, don't you know?

    As for your claim that taking away patent protection harms technology development -- especially in least developed nations, folks in Switzerland and the Netherlands might disagree. Both countries got rid of their patent systems for a while in the second half of the 19th century and innovation thrived, allowing both countries to raise their own economic status.

    There are tradeoffs to patents. Some of them good, some of them bad. Our argument is that there's increasing evidence that the bad is vastly outweighing the good.

     

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  5.  
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    Adam Szymczak, Aug 17th, 2005 @ 11:38am

    Re: Wrong. Try again.

    "I stopped reading after the massive error in the first sentence. Patents do not grant a monopoly -- at all. Patents grant a limited monopoly that expires after twenty years. That is why you will never see an antitrust case based solely on having patents. Once twenty years pass, the competitor can copy the system exactly."

    A monopoly is a monopoly. There is no such thing as a "limited monopoly". When you are given total control over some type of intellectual property, be it for 20 years or forever, it is a monopoly.

     

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  6.  
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    gg, Aug 17th, 2005 @ 11:52am

    Innovation and patents

    A true scientist makes "observations" in the real world and sees if the observations conform to his fantasy mental model of how the world works. If there is a lack of conformance, the fantasy model must change.

    If you were to interview foreign inventors who come to America (yes, They're Coming to America, as Neil Diamond sings), you will be surprised that "they" come here because there are no patents there. Time to change your model.

     

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  7.  
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    Pete, Aug 17th, 2005 @ 12:29pm

    Re: Protecting IP through Prior Art

    --x--
    Instead of stockpiling patents, the way Microsoft has started doing, companies could much more cheaply just publish the ideas and save themselves a lot of money in lawyer and patent fees. If you are just trying to protect yourself from other patent stockpilers, I think this would be a better method.
    --x--
    This is a self-perpetuating problem. I don't think that companies are as concerned about somebody stealing their ideas, as they are about having a bank account of patents to fight off other litigation. Patents form yet another currency of business. It's the USPTO that needs to effect the change, not the individual businesses. They're just working within the current model.

     

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  8.  
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    Jacob, Aug 17th, 2005 @ 12:34pm

    Re: Innovation and patents

    Of course inventors foreign or otherwise are going to come to the place where their ideas are worth most (or at least protected most). But there is a prior condition in your argument, that a plausibly successful invention has already been made.
    Having a strong patent system will probably not stifle the least risky inventions (the kind that would bring a foreign inventor to the states). But it will certainly provide resistance to smaller, more risky inventions.

     

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  9.  
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    Jack G, Aug 18th, 2005 @ 9:54am

    Re: Innovation and patents

    Thanks for bringing some common sense here gg and others. People think the European system is better than the first to invent system for the same reason they buy French wine and water. The facts are that their standard of living is far lower than that in the USA, and the reason is that the US's patent system was stronger. Europe's big business -funded politicians kill innovation compared to what was in the US. The new laws will, one official, reverse that and make those who short the dollar rich. Not to mention kill the American dream. I'd like to know how many companies (or quality jobs) Joseph Stiglitz started. I'd guess 0. He is an educator with a capital E and an embarrassment to the Noble Prize. --Jack

     

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  10.  
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    ezra abrams, Dec 16th, 2007 @ 10:40am

    r any of you real inventors

    Patents are good and bad; to paraphrase Churchill, the worst system ever invented, except for all the others.
    Innovation is such a complex thing - how can it be reduced to soemthing simple enough to get a yes no on patents ? ya gotta think about the real world - complex, messy humans.
    as someone who works at small companies driven by patnetns and venture capitial, i would say patents are a big thing for driving innovation; innovation in your brain is fine, but untill it turns into something, it aint curing your cancer. I'm sure all you people can point to all sorts of theory and quotation; why don't you get a job in the real world, and you will understand why patents aint all that bad (that the system works about as well as fema in katrina merely means we got something to fix, not that is is wrong. )
    as for that moron Jack G - What plane are you living on ? Europeans have, by many measure, a higher std of livingg. NOt only that, in many high tech areas they are AHEAD of us, eg anyone who has been to Europe knows cell phones are way ahead of us....but why let facts spoil your right wing theorys ?

     

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  11.  
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    James, Apr 24th, 2008 @ 9:24pm

    Re: Re: Wrong. Try again.

    Mike, you said "monopolies DO slow down innovation".

    That's totally wrong. What data do you have to back it up.

    If there is patent monopoly IN FORCE, then competitors are forced to innovate around the patent. This is called "thinking outside the box" for all you laypersons.

    How do you explain the exponential technological progress since patents were first allowed (1700s onwards) compared to the era before patents were allowed.

    You fail to explain why Switzerland and the Netherlands brought back a patent system after they got rid of it. Name some prominent inventions by Swiss and Dutch people in those 50 "glorious" years you mention. You can't because there aren't any, and you can't prove innovation thrived.

    You have absolutely presented no persuasive evidence that patents are more "bad" than they are "good". Can your logic in your argument be used to claim that taxes are more "bad" than they are "good"? Or for other things like copyright, industry standards (for example, safety, numbering systems, classification systems, accounting standards).

    You are seriously out of your depth Mike. You should listen to what Jeff is saying. I have come across many inventors who would've had their good idea stolen by "evil" companies too cheap to invest in their own R&D, and these individual inventors have made a ton of money. You will find that the data supports that patents protect the individual more so than the company. You never see a company sue an individual for patent infringement do you? Patents even up the unfairness between big companies with large resources and creative individuals with fairly limited resources.

    Take patents away and watch the progress of innovation dwindle to the rate experienced between the stone age to dark ages.

     

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  12.  
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    James, Apr 24th, 2008 @ 9:30pm

    Re: Re: Wrong. Try again.

    Adam, you are a fool.

    Of course there are limited monopolies and unlimited monopolies.

    Copyright, patents and designs have limited monopolies. Jeff quite rightly said a patent has a maximum monopoly term of 20 years. After that term is up, it is free for the public to exploit the invention. This is the bargain the State makes with the inventor for disclosing his invention and add to society's stock of knowledge. Before patents, everything had to be kept as a trade secret which means that the State as whole did not benefit and only the trade secret holder did until such time someone managed to find out the trade secret.

    Unlimited monopolies include trademarks. Trademarks monopolise a mark or indicia on a class of goods or services in perpetuity so long as the renewal fees are paid.

    So Adam please go read a text book on intellectual property before you embarass yourself again.

     

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  13.  
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    Mike (profile), Apr 24th, 2008 @ 11:18pm

    Re: Re: Re: Wrong. Try again.

    That's totally wrong. What data do you have to back it up.

    Where would you like me to start? There's the research of Bessen and Meurer. The research of Levine and Boldrin. The research of Petra Moser, Eric Maskin, even Milton Friedman showed part of the problem. And the list only goes on from there...

    You fail to explain why Switzerland and the Netherlands brought back a patent system after they got rid of it.

    Oh sure, that's easy. They brought back the patent system for two reasons: (1) The innovative industries in both countries now wanted patents to protect their innovations, rather than having to compete. As Bessen and Meurer found, all of the evidence shows that stronger patent protection *trails* innovation rather than proceeds it. Once it's put in place it doesn't increase innovation at all. (2) Pressure from other countries who were upset at seeing companies increasingly move operations to the Netherlands and Switzerland (more Switzerland than the Netherlands). So there was political pressure from other nations who couldn't keep up.

    Patents even up the unfairness between big companies with large resources and creative individuals with fairly limited resources.


    Actually, if you look at the research you'll find that smaller companies tend to do much better than big companies in innovating, because they're faster and more nimble. Big companies are slow and cumbersome. So, I don't see how you can claim that big companies have the entire advantage.

    Take patents away and watch the progress of innovation dwindle to the rate experienced between the stone age to dark ages.

    Unfortunately, there's simply no proof to support that, but thanks for trying...

     

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