Patent Pools Harming Innovation

from the as-they're-known-to-do dept

Stephan Kinsella alerted us to Petra Moser's latest research (along with Ryan Lampe). Moser has been doing some tremendous research into the patent system, much of it looking at evidence of what impact the patent system really has (or has not had) on innovation over the years. In the past, we've talked about her research showing that countries without patent systems often have just as much innovation as those with patent systems (contrary to what you might hear from patent system defenders). In this case, the research looks into the question of whether or not patent pools encourage innovation.

Patent pools tend to come about when you have a lot of patents in and around a particular product, creating "patent thickets" where a bunch of different patent holders all hold onto important pieces of the puzzle. The worst case scenario, then, is that nothing can get done, as it's impossible for anyone to innovate without being hit by a ridiculous number of lawsuits. To us, this is a sign of the patent system clearly not working. If so many different elements all need to be patented separately, then mistakes were made in the patenting process. You get, as Michael Heller has called it, a gridlock situation. Our solution? Throw out such patents, because they're clearly hindering, rather than enabling, innovation.

Others, however, have suggested that patent pools are a good solution to the problem. All (or, at least, many) of the players come together, and agree to share their patents in order to create products based on those patents with some sort of sharing of the eventual proceeds. In fact, IEEE is now working to encourage patent pools around IEEE standards. In the past, we've explained why we think patent pools create exactly the wrong incentives, but Moser and Lampe's research goes much further, finding that patent pools do, in fact, seem to limit innovation. They do this in a number of ways.

First, companies scramble to get patents that can be included in the patent pool (rather than focusing on actually innovating in the market and understanding what the market wants). Once the pool is truly established, patenting decreases, because it's just not worth it to compete. After the patent pool dissolves, then others finally get back into the market. Second, because the patent pool locks in the effective "standard" early in the process, it might not actually be the best technology. In their research, Lampe and Moser found that this is exactly what happened with the first patent pool concerning the sewing machine. It "shifted the direction of innovation to an inferior technology... which was known to be significantly less robust, and unsuitable for mass production."

Then, once they're in the patent pool, they become anti-competitive: suing any upstart that tries to innovate and is not a member of the patent pool. So, effectively, rather than innovating, they use the patent pool to block any competition. Finally, once the patent pool is in place, the companies involved decrease their own pace of innovation, because they've basically just blocked out the competitors. Thus, they don't need to keep innovating at the same pace.

None of this is really that surprising. It fits with much of the other research we've seen over the years concerning patents. The core problem, once again, is confusing innovation (finding something that the market actually wants in a way that it wants it) with invention (coming up with something new). When you get a patent, or set up a patent pool, what you're effectively doing is declaring a stop on any incremental improvements above that. It ignores the fact that real innovation is an ongoing and never ending process of improvements and tweaks, often made by others. But, in blocking out the ability of others to make those improvements -- those real innovations -- you slow down, drastically, the pace of innovation. In the end, a patent pool is just like a bigger patent, and has the same negative impact on innovation, just on a larger scale.

That's not to say there weren't some benefits from the patent pool -- but they seem quite narrow and extremely limited. There was an increase in patenting right before the patent pool was established (basically, as companies scramble to get included in the pool). But, it's difficult to say if that's actual innovation or just coming up with something that will get them in the pool. It did mean that members of the pool faced many fewer infringement lawsuits as defendants. It meant they were able to block out competition. But, of course, none of those things are what the patent system is supposed to encourage.

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