Does The iPhone Need Patents?

from the questions,-questions dept

A bunch of folks have noted that Steve Jobs seemed mighty excited about the 200 or so patents Apple has filed around some of the technology involved in the iPhone (or whatever it's going to be called). A few have asked my opinion on the patents -- but not knowing what the patents are on, it's tough to have that much of an opinion on them specifically. However, Tim Lee points us to a blog post from someone who claims that the iPhone shows why patents are necessary, since "The investment necessary to develop a radically new interface like Multi-touch requires that Apple have a way to protect that investment. If Nokia, Sony, and Motorola could all simply copy it in their new phones, why would Apple even bother?" A few others have suggested the same sort of thing, but those two statements together actually seem to contradict each other. If it was so expensive to develop the multi-touch technology (which isn't new at all and similar technology has been demonstrated publicly in the past), then how would those other companies be able to just copy it? If it's so easy to copy, then it shouldn't have cost that much to develop.

Either way, Tim's response at the Tech Liberation Front is well worth reading, as he points out how silly that argument really is, noting that if the technology works as well as the demo, then Apple is going to make a ton of money with or without patents -- because people will buy the phone. In other words, the market is what gives Apple the incentives to develop these technologies, not patents. As Tim says: "Blafkin seems to believe that Nokia, Sony, and Motorola have a magical technology copying machine that can instantaneously duplicate Apple's innovations. But cloning a breakthrough new user interface is actually quite difficult. Just ask Microsoft, which spent six years trying to clone the Macintosh interface in the late 1980s.... Even if Nokia does a lot better than Microsoft and manages to clone the iPhone interface in, say, 2 years, that still means that they'll be perpetually 2 years behind. Why would consumers buy a knockoff of the 2007 iPhone from Nokia when they can buy the 2009 version from Apple?" That last point is key. The way to compete isn't by catching up and "copying" someone else, but to continuously innovate. Then, even if someone else catches up, you're still ahead -- and, if anyone can keep on coming up with new innovations, it appears to be Apple. So, even without patent protection, Apple would make more than enough money to recoup their development costs. But, the downside is that Apple doesn't need to keep up the same pace of innovation now. Others won't be able to compete and push Apple to innovate as fast because Apple can block them with patents. At the same time, those who don't want to live by Apple's rules (Cingular-only, 2 year contracts, no 3G, no ability to develop additional apps, no VoIP, etc.) but want a phone with a similar design will be out of luck. That's bad for innovation and bad for the economy.

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  1. identicon
    Stu Charlton, 14 Jan 2007 @ 4:54pm

    Continuous innovation is absolutely necessary, but it isn't sufficient. One requires a functioning marketplace in order to cover the costs of innovation today & tomorrow (through entrepreneurial profit)... which is the whole idea behind competition through innovation, or Schumpeter's view of the economy being one of dynamic disequilibrium, or monopolistic competition.

    There's a whole body of theory emerging from economic New Growth Theory, starting with Paul Romer around 1990, with his paper "Endogenous Technological Change" about how technological change leads to growth.

    According to Romer, "growth is driven fundamentally by the accumulation of a partially excludable, nonrival input". Non-rival goods are goods where more than one person can posses it, e.g. an idea, a copy of a MP3, software, etc. Goods that are partially excludable imply the creator of the good can prevent people from using it or re-producing it to a certain degree. This isn't just about law, by the way, it's about the theoretical ability for something to be excluded (whether through physical, technological, legal, or other means).

    Knowledge -- one of several inputs into successful innovation -- is non-rival and at best partially excludable (it will eventually leak out). Intellectual property law is one way to enact this, as are things like DRM, etc.

    A fully non-rival, non-excludable good is a public good, and exchange of such goods really isn't governable by a marketplace. Excludability is the death knell: If I can't prevent somone from using or reproducing something, I can't really exchange it in a market as there's no demand incentive. That means I can't cover my costs of today, and I can't cover my costs of tomorrow through profit, leading to no supply incentive.

    The environment, for example, could be considered a public good. Any restrictions on the use of the environment can't really be settled well through a market, they have to be through legal means.

    So, the point is this -- if we feel that human capital & knowledge capital is valuable & scarce, or perhaps that we feel that time is scarce and time is significant big factor in how much knowledge is generated in a new technology, we have two choices:
    - have a public or private body invest in knowledge-intensive goods and fund it via taxes, retained profits from other goods, or donations
    - subject knowledge-intensive goods to a market of monopolistic competition. It's "monopolistic" because there is no standard equilibrium price-taking competition when exchanging non-rival goods.

    The former has the benefit of working when the investment is directed at something that can create new customers, new markets and avenues for growth. Examples include the TCP/IP protocol suite and many open source projects. But it also has the potential of squandering tremendous resources because it's not directly subject to market demand. (Witness the explosion of duplicate projects out there that all "scratch that itch" just a bit differently...)

    The latter works too, is more efficient at allocating resources at opportunities in demand, but by nature will lead to onerous temporary restrictions on freedom of use.

    My view: Both approaches can work in certain circumstances, but i caution people from having delusions of one system being clearly superior to the other.

    In a market system, the trick is to find the balance between utility and restriction. Patents make sense to me. Does the patent system need reform to get rid of trivial or obvious patents? Yes. Does it make sense to reduce the number of years a patent is valid? Yes -- innovation cycles are quicker, markets respond faster, etc. Should Apple avoid patents and let the innovation in the iPhone become more of a 'public good'? Probably not in the short run. It's not in the interests of their employees, shareholders, or customers, who want Apple to continue to invest in technological change as a way of increasing its capacity for creating wealth. Sometimes it's better for all to 'spread the wealth' rather than keep it localized, but it's not clear that this is such a case.

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