Andy Grove: Patents Are Like Mortgage Backed Securities

from the and-innovation-will-suffer dept

Intel co-founder and former CEO Andy Grove gave quite a speech this weekend at the National Inventors Hall of Fame, where he explained how patents are looking increasingly similar to the sort of financial derivatives that have brought down today's economy:
The true value of an invention is its usefulness to the public. Patents themselves have become products. They're instruments of investment traded on a separate market, often by speculators motivated by the highest financial return on their investment....

The patent product brings financial derivatives to mind. Derivatives have a complex relationship with an underlying asset. While there's nothing wrong with them in principle, their unfettered use has damaged the financial services industry and possibly the entire economy.

Do these patent instruments put us on a similar road? I fear our patent system increasingly serves those who invest in the patent products... It may be time to use Jefferson's principle as a test and ask if we meet it.
It's an interesting comparison and one that does seem apt the more you think about it. In separating out the "security" from the underlying asset, we tend to distort things. It was that distortion that resulted in the financial crisis, as it enabled those who wanted to sell risky things to obscure the actual risks and pretend that their securities were safer than they were. With patents, the system has been distorted to present the patent itself as being valuable, rather than the ability to execute and implement an idea in a manner that the market appreciates. It's definitely an area that could stand further thought and scrutiny.


Reader Comments (rss)

(Flattened / Threaded)

  1.  
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    Anonymous Coward, May 4th, 2009 @ 3:40pm

    you cannot spout anti-patent rhetoric

    until you have read bilski/comiskey/cybersource, paice/ebay, medimmune, quanta, festo, and ksr. the last 3 years of patent law have increasingly snowballed into a much more reasonable system.

    intel is one of the top tier licensing companies on the planet. do you really think they want less patents?

     

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  2.  
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    Mike (profile), May 4th, 2009 @ 3:57pm

    Re: you cannot spout anti-patent rhetoric

    until you have read bilski/comiskey/cybersource, paice/ebay, medimmune, quanta, festo, and ksr.

    What makes you think he hasn't?

    the last 3 years of patent law have increasingly snowballed into a much more reasonable system.

    More reasonable, yes. That's not the same as reasonable, however.

    intel is one of the top tier licensing companies on the planet. do you really think they want less patents?

    Grove is no longer working at Intel. Besides, he's long been known to speak his mind on any subject beyond just what's good for Intel.

    And I'm not sure what Intel wants, but my guess is that they know their real business isn't in patent licensing, and they'd be more than willing to give up that revenue if it meant they could do much more on the innovation product side.

     

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  3.  
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    kirillian (profile), May 4th, 2009 @ 3:59pm

    Re: you cannot spout anti-patent rhetoric

    Seriously...someone's panties are in a wad.

    Frankly, I could care less about how Intel feels about losing its patents...I'm personally tired of watching and receiving the backlash of this patchwork Intellectual Property/Copyright/Patent system. And, yes, I understand that they are different. But that kind of argument is just BS and a straw man. All of them stem from the concept that giving someone a temporary monopoly over their creation (be it art or an idea) will encourage more innovation.

     

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  4.  
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    Anonymous Coward, May 4th, 2009 @ 4:33pm

    Re: Re: you cannot spout anti-patent rhetoric

    What makes you think he hasn't?
    I wasn't talking about him. I was talking about you. You're writing an editorial on a blog where you bash IP multiple times per day. But if you have no idea what IP actually entails (there's not even one big case a month... just read that one), how the hell are we supposed to accept your opinion as informed and valid?

    And even here, you guys here at TD even admitted Oceantomo's auction was a total flop. Big firms with reputations for representing trolls (like Dechert) are laying off patent attorneys in droves. If you'd only put away the fanaticism card and think with a rational mind for about 5 seconds, you'd realize that Grove's opinion is filled with rhetoric and exaggerations too. Yes, companies still pool patents and others buy them for pennies in bankruptcy sales. But that's calmed down a lot now, and if you knew anything about the patent system, you'd know that by now.

     

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  5.  
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    Mike (profile), May 4th, 2009 @ 5:06pm

    Re: Re: Re: you cannot spout anti-patent rhetoric

    I wasn't talking about him. I was talking about you.

    Er. I have read all the decisions you mentioned. In fact, I've written about most of them. In detail. What makes you think otherwise? And I'm curious why you think that I shouldn't be allowed to comment on something Andy Grove said if I hadn't read a bunch of recent court decisions (all of which I have read).

    You're writing an editorial on a blog where you bash IP multiple times per day. But if you have no idea what IP actually entails (there's not even one big case a month... just read that one), how the hell are we supposed to accept your opinion as informed and valid?


    I'm quite familiar with what IP entails. I'm not sure why you insist otherwise.

    And even here, you guys here at TD even admitted Oceantomo's auction was a total flop.

    Right. What does that prove?

    Big firms with reputations for representing trolls (like Dechert) are laying off patent attorneys in droves.

    You're improperly framing the issue as being "trolls" vs. big companies. That's not the issue at all.

    The problem isn't with patent trolls. It's with the fundamental system itself.

    If you'd only put away the fanaticism card and think with a rational mind for about 5 seconds

    I'm not fanatic at all. I've been studying this stuff for years, and I've been slowly convinced of my position after seeing more and more evidence. Insulting me doesn't convince me to change my mind. It just makes me think you don't have any evidence to support your position.

    you'd realize that Grove's opinion is filled with rhetoric and exaggerations too.

    You seem to read way too much into what we wrote. I just thought the comparison was an interesting one, and in many ways accurate and worth thinking about in how the core asset is separated from what's traded. That's a point that I thought was worth discussing.

    You seem to think that I shouldn't even be *ALLOWED* to bring it up.

    Which is a more credible position?

    Yes, companies still pool patents and others buy them for pennies in bankruptcy sales. But that's calmed down a lot now, and if you knew anything about the patent system, you'd know that by now.

    Um. I do know that, but that's not what this post is about.

    Please. Try reading before you insult. Otherwise, it's difficult to take you seriously.

     

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  6.  
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    Anonymous Coward, May 4th, 2009 @ 5:13pm

    Re: Re: Re: you cannot spout anti-patent rhetoric

    Grove does, however, make a valid point that many of us within the legal community have been examining for quite some time; namely, is the disassociation of a patent instrument from the underlying invention an action consistent with the founding principles upon which patent law is based?

    Granted, viewing and treating grants purely as negotiable instruments is at this point in time a miniscule bump in the road, but it does give me pause to reflect what would be the likely reaction by Congress and the courts if what is now "miniscule" gained significant traction? Merely by way of example, and not limitation, might is result in changes to the "patent misuse" doctrine?

     

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  7.  
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    Anonymous Coward, May 4th, 2009 @ 5:18pm

    Re: Re: Re: Re: you cannot spout anti-patent rhetoric

    "might is result" should obviously read "might it result".

     

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  8.  
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    Mike (profile), May 4th, 2009 @ 5:19pm

    Re: Re: Re: you cannot spout anti-patent rhetoric

    I wasn't talking about him. I was talking about you. You're writing an editorial on a blog where you bash IP multiple times per day. But if you have no idea what IP actually entails

    Furthermore, I should respond to this argument the same way I have in the past. The folks, like yourself, who insist that no one should be allowed to comment on patent law unless they are deeply versed in the legal aspects of it, never seem to recognize that the argument runs the other way too.

    Are you a trained economist? Have you read all the economic research outlining how much harm the patent system does? No? Then, clearly, you are not allowed to comment either.

    That's obviously a dumb statement. Yet, it makes about as much sense as claiming only those who work with patents can comment on the system.

     

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  9.  
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    Vinny, May 4th, 2009 @ 5:33pm

    Ya Baby

    I want somma dat hot patent derivative action

     

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  10.  
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    Anonymous Coward, May 4th, 2009 @ 5:58pm

    Re: Re: Re: Re: you cannot spout anti-patent rhetoric

    Wait, you really think that by posting 100% anti-IP editorials promoting other anti-IP rhetoric or bashing pro-IP rhetoric, that you're not endorsing any position? That's like saying Fox doesn't endorse Republicans. That's why the other article today pit you guys as the Fox News of web2.0. And you're not the only blog who does this.

    I never said that you can't understand economics without heavy experience in the economy. But you can't understand quantum mechanics or biochemistry without experience and multiple degrees in either field. Comparatively, economics is an incredibly easy concept to grasp (especially for us engineering folk). Law, and especially IP law, is usually a mix of technical fields and the law, both of which are incredibly more complex than economics.

    If you've really read (and understood) these cases (they're almost all from the last 3 years), you'd know how utterly ridiculous your arguments (and Grove's) are. And you wonder why the pro-IP (and even the moderate-IP) crowd doesn't take you seriously.

     

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  11.  
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    Mike (profile), May 4th, 2009 @ 6:26pm

    Re: Re: Re: Re: Re: you cannot spout anti-patent rhetoric

    Wait, you really think that by posting 100% anti-IP editorials promoting other anti-IP rhetoric or bashing pro-IP rhetoric, that you're not endorsing any position?

    Uh, no. I didn't say that. Please, I beg you, read before you say stuff like that. I do post my opinion on things, and I don't consider it to be anti-IP at all. I consider it to be pro-innovation. Since we keep seeing how IP gets in the way of innovation, I can see how you might misinterpret my position, but I'm not "anti-IP." If you can show how IP helps innovation, I'd love to see it.

    That's like saying Fox doesn't endorse Republicans.

    That's quite different anyway. This is quite clearly an opinion site, not a news site.

    I never said that you can't understand economics without heavy experience in the economy.

    I didn't say you said that. Your reading comp skills aren't very good today. You want to start again?

    But you can't understand quantum mechanics or biochemistry without experience and multiple degrees in either field.

    Indeed. Who said otherwise?!?

    Comparatively, economics is an incredibly easy concept to grasp (especially for us engineering folk).

    Heh. Funny. Since you seem to get it pretty much entirely wrong, I find that statement hard to support.

    Law, and especially IP law, is usually a mix of technical fields and the law, both of which are incredibly more complex than economics.

    I don't disagree. But you seem to have missed my point. You claimed that I could not comment on the ECONOMIC impact of patents without understanding patent law. That's wrong.

    I was pointing out how silly it was by comparing it to the economic equivalent. You seem to have missed the point despite me spelling it out directly.

    If you've really read (and understood) these cases (they're almost all from the last 3 years),

    I have. Please go ahead and look. I've written about most of them. Suggesting otherwise doesn't make you look more credible.

    you'd know how utterly ridiculous your arguments (and Grove's) are

    Hmm. Again, this is simply wrong. As I noted earlier, those cases have brought the bar back in a reasonable direction, but have hardly solved the problem. Not even close. To say that there's no more problems any more, and that Grove's comments are "ridiculous" is to miss the entire point of Grove's argument.

    The problem with patents isn't solved by a few Supreme Court cases that moved the bar just slightly and mostly focused on the issue of trolls. NPE aren't the issue.

    And you wonder why the pro-IP (and even the moderate-IP) crowd doesn't take you seriously.

    Heh. If they didn't take me seriously, they wouldn't keep stopping by here and posting ignorant rants telling me to shut up.

    I appear to strike a nerve much closer than you would like.

     

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  12.  
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    Live&breath_patents, May 4th, 2009 @ 6:38pm

    Talking about economics...

    Mike, please read this. It's all about you folks. http://stanleybing.blogs.fortune.cnn.com/2009/04/ "1. Economics is a bunch of bushwah. Now we know it. Economists are obviously not only behind the curve on what has occured, they are in many cases the cause of it. It is not a science. It is not even an art. At best, it’s a craft, like pottery. As things improve, we can expect a bunch to begin operating pretty much as usual, though. Why shouldn’t they? It’s a living." Patent licensing is not similar to derivatives. That is gross exaggeration. Andy probably ended up at the receiving end some how.

     

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  13.  
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    Peter, May 4th, 2009 @ 6:41pm

    Appreciate Techdirt.

    Why does exposing the truth annoy some people? New patent lawyer that hasn't yet found a gravy train?

    Anyway Mike keep up the good work, unlike most blogs, you generally offer insight to go with the information.

     

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  14.  
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    Mike (profile), May 4th, 2009 @ 6:49pm

    Re: Talking about economics...

    Mike, please read this. It's all about you folks

    Define "you folks."

    http://stanleybing.blogs.fortune.cnn.com/2009/04/

    Heh. You can't even figure out how to link directly to an article, and you want me to take you seriously on these issues?

    Economics is a bunch of bushwah. Now we know it. Economists are obviously not only behind the curve on what has occured, they are in many cases the cause of it

    So, uh, because some random person on the internet I've never heard of declares it without support, it must be true? Yikes.

    But, again, you seem to be 100% missing the point. I didn't say economics was brilliant or that it was right or that economists were always smart or right. I've never said anything of the sort. Just earlier today I took apart an economists' argument right on this site.

    But I'm not saying anything along those lines. I was just pointing out that it's ridiculous to claim that people without a background in patents can't comment on the economic impact of patents.

    Patent licensing is not similar to derivatives. That is gross exaggeration

    Man. Reading comprehension. Try again. No one said they're the same. It was just pointing out where they were similar.

    What's amusing is for all you folks insisting that it's ridiculous, no one has actually offered up an argument for why. You just insist it's ridiculous and say we should shut up.

    That's when I *know* I'm a lot closer to being right.

     

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  15.  
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    Bettawrekonize, May 4th, 2009 @ 7:03pm

    I do think that some intellectual property can be helpful in advancing innovation but I think we should greatly increase the standard required for getting a patent (and for maintaining one in a court of law). I have discussed some very simple ways of doing this in other threads (ie: for a patent to hold water in a court we should allow for a 2/3 majority or a 3/4 majority vote of approval).

     

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  16.  
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    Bettawrekonize, May 4th, 2009 @ 7:04pm

    (that is, a 2/3 or a 3/4 majority of approval by a jury of 12 or so. So if only 60 percent of a jury think a patent is reasonable then it should not be upheld).

     

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  17.  
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    Anonymous Coward, May 5th, 2009 @ 5:40am

    Squeel

    like a stuck pig they do.

     

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  18.  
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    patentshark, May 5th, 2009 @ 5:50am

    Patent Bubble, but how it will explode?

     

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  19.  
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    Anonymous Moron, May 5th, 2009 @ 6:31am

    What is Jefferson's principle?

     

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  20.  
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    staff1, May 5th, 2009 @ 6:56am

    maximize

    "Patents themselves have become products. They're instruments of investment traded on a separate market, often by speculators motivated by the highest financial return on their investment"

    So Grove never attempted to maximize Intel's investment? That's rich!

    Ahh, the good old days when corporate titans could license inventions for a song and laugh about the pittance they paid poor old inventors. That's because the patent system in those days was fraught with uncertainty for inventors so they were often desperate to get anything they could. Check out the movie Flash of Genius.

    patent reform is a fraud on America...
    please see http://truereform.piausa.org/ for a different/opposing view on patent reform

     

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  21.  
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    Mike (profile), May 5th, 2009 @ 10:29am

    Re: maximize

    So Grove never attempted to maximize Intel's investment? That's rich!

    Er... he didn't say that, and assuming that he did suggests a near total lack of both historical knowledge and reading comprehension at the same time. What he said was that the way to maximize *overall* investment is to build product that satisfies the market. His PROBLEM is with those who focus just on maximizing the investment in the *patent* (which is just the idea behind the invention) rather than maximizing the value of the invention itself.

    Ahh, the good old days when corporate titans could license inventions for a song and laugh about the pittance they paid poor old inventors. That's because the patent system in those days was fraught with uncertainty for inventors so they were often desperate to get anything they could. Check out the movie Flash of Genius.

    Heh. The mythical past. That didn't happen.

    patent reform is a fraud on America...

    We agree that patent reform, as currently written is bad. But it's not fraud. It would improve somethings and make others worse.

    And, anyone who links to RJR's sites loses immediate credibility. His "different/opposing" view on patent reform is to falsely accuse any big company of "theft." Yeah, that's convincing. You do realize that he has no credibility anywhere, other than a few reporters who need a good quote every once in a while, right?

     

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  22.  
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    Charles, May 5th, 2009 @ 4:13pm

    Re: you cannot spout anti-patent rhetoric

    "fewer" patents

     

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  23.  
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    Robert Millan, May 5th, 2009 @ 5:27pm

    Re: Re: Re: you cannot spout anti-patent rhetoric

    You're writing an editorial on a blog where you bash IP multiple times per day. But if you have no idea what IP actually entails [...], how the hell are we supposed to accept your opinion as informed and valid?

    Actually, we're the ones who actually *produce* something. And every time we try to innovate and bring technology further we get stuck with this "IP" non-sense barring the way. Making interoperability impossible between platforms. Rendering new ideas useless for 30 years until they can be implemented without paying a prohibitive tax.

    You "IP law" experts are just a bunch of parasites. You really have no idea on what's actually making the world work. So please do us all a favor and move on do something else.

    Thanks...

     

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  24.  
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    Robert Millan, May 5th, 2009 @ 5:49pm

    Re: maximize

    Ahh, the good old days when corporate titans could license inventions for a song and laugh about the pittance they paid poor old inventors.

    That's where you get it all wrong. You see, unless your name is Edison, being inventor is not a profession. Ideas just happen; most specially when you're working on a specific field on a daily basis rather than pursuing a "patentable asset".

    Since this "starving inventor" meme is an invention itself, I wonder how would you feel if you couldn't use it anymore in an argument without paying a royalty to its legitimate owner. It's a rather disturbing thought, isn't it?

     

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  25.  
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    Anonymous Coward, May 6th, 2009 @ 4:33am

    I am an inventor, not a meme. But the paraphrasing is a distortion, Mike. Read the entire quote - What is (Thomas) Jefferson's principle? Just focus on that question. And, then explain that? Frankly any person who is anti-patent generally does not understand what a patent is. We live in a world that criminalizes copyright infringement but denigrates inventors. You disagree? A patent is not a right to do something: it is a right of exclusion. Grove's quote is quite a distortion. MBS are pools of assets, the derivatives are derived from those assets. Grove is right that patents are difficult to understand. But Intel has benefitted greatly under the patent system. And is an NPE for most of its own patents. No such thing as "open standards" - money is what drives all parties. Except we bailout banks, bc of MBS (?) & do stress tests but throw barbs at inventors. Maybe we can all grow up & become pro ball players & writers (with proper copyright protection in place, of course)

     

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  26.  
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    Jim O., May 6th, 2009 @ 10:15am

    Informed opposition to patents

    "Frankly any person who is anti-patent generally does not understand what a patent is."

    This epitomizes the arrogance of the patent lobby: they insist that they know best how to benefit the economy, and all opposition to them must be the product of ignorance. Frankly, such a position is both absurd and infuriating.

    Government-granted monopolies are uniformly evil. In each case, they must be justified by a greater counterbalancing benefit to society. In the case of the patent system, it is perfectly resonable to conclude that, especially in some fields such as computer software, the balance is decidedly against society in general and unjustifiably in favor of the patent-holder. Of course, the patent industry is hardly a disinterested party to this discussion, and its views are necessarily colored by that fact.

    So there you have it, the patent industry on one side calling its critics ignorant fools, and the critics calling the patent industry greedy parasites. To some extent both claims may have some validity, but does the name-calling really advance the discussion?

     

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  27.  
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    Anonymous Coward, May 6th, 2009 @ 11:52am

    Re: Informed opposition to patents

    Just an observation, but I have noted many, many instances where anti, pro and neutral persons concerning IP truly are clueless about what a patent "is". Far too many seem to believe they confer upon a pantentee the right to practice his/her invention, which is not the case. Others seem to believe that they lock up a technology, when in fact the only "thing" that they do is place certain limitations as defined by the patent's claims.

    The difficulty with having beneficial exchanges of views stems in substantial measure from what is noted above.
    I have no problem with the views of persons who are not steeped in the vagaries of the law, but it is a tad frustrating to try and follow/respond to arguments where the one making an argument clearly misunderstands what patents actually address.

     

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  28.  
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    Jim O., May 6th, 2009 @ 12:31pm

    Re: Re: Informed opposition to patents

    I'm sorry, but the distinction between the "right to exclude" that a patent confers and, for example, the bundle of "exclusive rights" conferred by copyright, while important to those prosecuting and litigating patents, is secondary to the fundamental public-policy question: is the monopoly justified? All too often, the pro-patent side takes this for granted.

     

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  29.  
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    Dale B. Halling, May 7th, 2009 @ 11:15am

    Re: Re: you cannot spout anti-patent rhetoric

    Patents do not provide a monopoly. They provide a right to exclude, not a right to use or a right to a market. A legal monopoly is a right to a market. The countries with the weakest patent laws innovate the least, countries with the strongest patent laws innovate the most. But may be that is just coincidence?

     

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  30.  
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    Josh K, May 15th, 2009 @ 9:40pm

    Re: Re: Re: you cannot spout anti-patent rhetoric

    The right to exclude is fundamental to the purpose of a patent and thus distinguishes a patent from financial derivative. This property right means a lot more than merely some technical consideration for litigators because it serves the underlying purpose of promoting innovation. For more, see http://www.generalpatent.com/2009/05/07/response-andy-grove

     

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  31.  
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    Allan Masri (profile), Sep 8th, 2009 @ 12:24pm

    Only in Andy Grove's fevered brain

    Only in Andy Grove's world (which is not congruent with our own) does a patent derivative bear a close relationship to a mortgage derivative. Above all, there is no assumption that the value of patents will continue to rise indefinitely; most patents decline in value due to competition. Patents all have income associated with them, and that is their value; mortgages frequently have no value associated with them (if there is no equity value in the property) and are then purely speculative. There will never be a patent bust where all patents suddenly lose value, because their variety is far greater than that of real estate, crossing many industries and nations. I suspect there will never be an insurance derivative of patents that attempts to cash in when a patent loses value; but if there is one, it will not be subject to manipulation since the patents will not all fall predictably at the same time. The patent market will more closely resemble the equity market, where bubbles may exist in parts of the market but seldom in the entire market at the same time.

     

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