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. icon
    Mike (profile), 15 Jan 2007 @ 1:41am

    Re:

    How much time and money do you think went into producing the star wars movies? How much does it cost to hit record on your VCR and have an exact copy of the resulting work?

    You are confusing fixed and marginal costs. You shouldn't compare them.

    So, if the innovator had to spend $1 million to develop a product, and wants to make $1 profit on each sale, then they may need to sell the product for $1.50, where 50 cents of that serves to reimburse their investment into the R&D of the product.

    You really are misunderstanding sunk costs.

    So, why would any consumer buy the product from the innovator, when they can buy the exact same thing from the copy-cat for 33% cheaper ($1.00 instead of $1.50)? Answer: They wouldn't.

    And now you're misunderstanding how markets work.

    So, why would any company bother to spend any money on R&D (to innovate) when they could never get that money back because if they tried to recoup their R&D expense within the product price, it will most certainly set the product's price above it's copy-cat competitors? They wouldn't,

    And now you're misunderstanding how economics works.

    They wouldn't, thus without patents, innovation would suffer because it wouldn't make much business sense to spend money to innovate a new product without a high chance to recoup that expense back in addition to making a profit.

    Ok. I thought I explained all of this above, but apparently I didn't do a very good job.

    You are making a bunch of wrong assumptions here. First, you are assuming a static market, which doesn't exist. If a company stops innovating, it dies. That's competition. That's how the market works. So, companies are always innovating. A copycat can only do so much to catch up, and the innovator should always stay ahead. If they don't, then they didn't compete very well.

    This is GOOD for innovation and GOOD for everyone, because it keeps companies continuously innovating, making better products, increasing productivity and generally helping everyone.

    As for your point that no one would buy from the innovator, that's false as well. Your pricing argument is also wrong. You don't price based on the cost of fixed and variable costs, but only on the variable costs (which in your example would be the same). If you don't understand why, do some research on fixed costs and sunk costs.

    There is more than just the copy at stake. The originator can add perceived brand value to the product as well so that people want to stick with the originator (witness my discussion of BMWs and Hyundais above). It's not so easy to "just copy" as you claim. There are plenty of additional costs involved, and in the end they don't have the brand reputation to make it matter anyway.

    Instead, what happens is the patent gives the originator time to sit back and rest on their laurels, rather than continuing innovation. That's why innovation slows down, rather than advances. There's no need to innovate until it gets closer to the patent expiring.

    Look at the steam engine, generally considered one of the most important innovations in shaping the industrial age. It was patented, and pretty much nothing happened for many years. It was only after the patent ended that competition and *real* innovation happened, that drove productivity and began the industrial age.


    Patents help the innovator by giving them a reasonable amount of time to recoup their R&D expense by keeping the copy-cats out of the market, thus making "innovating" a worthwhile activity - which encourages innovation.


    Ah, well, here's the problem. You claim "a reasonable amount of time." Who decides what's reasonable? There's no reason for the government to do that when the market is perfectly capable of doing it. That's the lesson the free market teaches you. Gov't protectionism is actually bad. It helps to let the free market spur on innovation.

    The world you describe is a static one where innovation is a one-off thing, rather than a continuous process. Unfortunately, that's not the world that actually exists, and that's why patents do more to harm innovation than to help it.

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