Is Cost Accounting To Blame For Patent Hoarding?

from the one-possibility dept

Michael F. Martin is a lawyer/investor who is always good for some interesting debates in the comments here on the question of patents. He's a supporter of the patent system, with some fixes. Suffice it to say that he and I disagree on an awful lot, though I appreciate his willingness to try to really dig into the questions being discussed and to dig through all sorts of ideas and research. It's just that we usually come to almost the exactly opposite conclusions.

I'm not sure where I come down on his latest thought piece, suggesting that part of the reason why companies have been hoarding so many patents is because of cost accounting. His assertion is that cost accounting treats patents as an asset, rather than as equity. That causes companies to overvalue the patent itself, rather than the investment and effort that need to go into making a useful, marketable product. His feeling is that as companies move away from static cost accounting, the problems related to patent hoarding will hopefully decrease.

It's an interesting theory that I have not heard of before. I agree that cost accounting creates all sorts of problems with accurately valuing company assets. I also agree that companies overvalue patents compared to the effort of actually bringing a product to market. However, it's not clear that it's cost accounting that's leading to the problem. He presents no evidence to show that the two things are connected. It seems that there's a much more straightforward explanation: numerous high publicity patent lawsuits with extreme awards combined with loosening of the restrictions on what can be patented has created a mad rush for patents. And, to make matters worse, companies feel they need to build up a stockpile of their own patents to fend off others with their own patent portfolios. The cost accounting angle is an interesting one, but it seems like a stretch to think the impact is that big compared to those other factors.

Filed Under: cost accounting, patent hoarding, patents, stockpiling


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  1. icon
    Mike (profile), 11 Jul 2008 @ 11:03am

    Re: stop the shilling!!!

    Cost accounting???? Mike, pull your head out of you’re a–. You’re making all this far too complicated. I can imagine you trying to do something really complicated ...like painting a door.

    Stv, you're amazing. Did you note the part where I point out that it's probably *not* a cost accounting issue. Before trashing me, you might want to make sure you read what I wrote.

    It’s real simple. If you want to spur innovation, you reward inventors with patents.

    Except for all the evidence that suggests that's not true. Why? Because invention is not the key factor in innovation. It is one part of it, but in locking up that invention it actually makes real innovation harder -- because innovation is a procss of trail and error until someone figures out what the market really wants. When you limit that process to only the inventor, you get less innovation.

    When corporate America agrees to not use our inventions without consent, American inventors and small entities will agree to stop suing them.

    Stv, I've also pointed this out to you as well, but you seem to ignore it: this has nothing to do with small inventors. Big companies (the ones you falsely accuse me of "shilling for") are bigger abusers of the legal system than the small entities in many cases -- and I'm equally against that. I don't like anything that blocks innovation.

    I've pointed all this out to you before, but you don't respond. Instead, you show up, make some totally unsubstantiated claims about me shilling followed by a false assessment of the situation as being about big companies using inventions without consent.

    Each time you do that without responding to the points I raise, the lower and lower your credibility sinks.

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