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.


Reader Comments (rss)

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  1.  
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    Skeptical Cynic (profile), Dec 11th, 2008 @ 3:09pm

    Good article Mike!

     

    reply to this | link to this | view in thread ]

  2.  
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    dragunkat, Dec 11th, 2008 @ 7:04pm

    I do agree with a lot of this article, but there are somethings that I have to disagree with. first is that, while standards may stifle innovation to an extent, they aren't completely blocked out. The wireless G "rangeboost" was an innovation on the original wireless G standard.

    Standards are also necessary, because otherwise the technologies would all be proprietary. You could not use a dlink router with a linksys wireless card without the standards. sometimes consumer needs to step infront of innovation, and sometimes, it's a good thing.

     

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  3.  
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    Mike (profile), Dec 12th, 2008 @ 2:55am

    Re:

    standards may stifle innovation to an extent, they aren't completely blocked out.

    I didn't say standards stifled innovation. I said using patent pools as a part of a standard does.

     

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  4.  
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    Anonymous Coward, Dec 12th, 2008 @ 6:54am

    "that countries without patent systems often have just as much innovation as those with patent systems"

    That phrase alone shows how weak your point is:

    1) The word "often" simply means that it occurs more then once or twice - but definately less then 1/2 the time - otherwise you would have use the term "mostly". So "often" really equates to "happens less then 1/2 the time", and if something happens less the half the time, that just means that the other MAJORITY of the time it doesnt happen (i.e. the countries with a patent system have the MAJORITY of innovation).

    2) Using the term "just as much", equates to meaning that even when a non-patent country has innovation, the level of innovation doesnt exceed that of a country with a patent system.

    Thanks for make an opposite point from what you intended!

     

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  5.  
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    Anonymous Coward, Dec 12th, 2008 @ 10:34am

    Once again the value of Ms. Moser's work is diminished by initial assumptions that in many instances are questionable.

    Underlying her assuptions is that the process of determining when to file an application is based upon some sort of a rational decision making. If there is one clear lesson I have learned over the years it is that such decisions are largely based upon irrationality and happenstance.

     

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  6.  
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    Mike (profile), Dec 12th, 2008 @ 10:57am

    Re:

    1) The word "often" simply means that it occurs more then once or twice - but definately less then 1/2 the time -

    Uh, that's not the definition of often. I used often in terms of that not every such case has been studied. But every case I've seen that has been studied shows innovation without patents.

    if something happens less the half the time, that just means that the other MAJORITY of the time it doesnt happen (i.e. the countries with a patent system have the MAJORITY of innovation).

    That's simply untrue. You're using a semantic argument, rather than a reality based one. If you'd prefer that I be clearer: every example of a modern country without a patent system that has been studied has shown considerable innovation, contrary to what supporters of the patent system claim.

    2) Using the term "just as much", equates to meaning that even when a non-patent country has innovation, the level of innovation doesnt exceed that of a country with a patent system.

    Um, once again, you are incorrect. The reason we used "just as much" is that not *all* countries had more innovation without patents, but *some* did. And this supports my point, rather than the opposite as you claim. The point made by patent system defenders is that the patent system encourages innovation. In such a case, you should ALWAYS see much GREATER innovation in countries with patents. The fact that you do not is a clear indication that patents do not, in fact, encourage innovation.

     

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  7.  
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    gene_cavanaugh, Dec 12th, 2008 @ 8:46pm

    Patenting

    I agree with Michael. To me, a patent should be issued ONLY to people who actually develop the idea (the first patents were based on this), and any patent holder should be required to license the technology for a reasonable fee.
    If someone actually builds a new product (think Netscape) they should be able to protect themselves from forays by the "establishment", whether the intent is to steal the idea or to simply kill it; but they should also have a duty to develop it (with partners, perhaps). There should be no patent trolls and no "exclusive" rights.

     

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  8.  
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    Anonymous Coward, Dec 14th, 2008 @ 7:10am

    "considerable innovation"

    There you go again using a word to try to inflate it's actually significance. If you feel your point occurs more often then the opposite side, why don't you use "Most Innovation" or "Majority of Innovation". Why because you can't. The facts show most innovation is from countries with a patent system. Period.

    My point is even though you try to use words that sound like your point occurs more often then the opposite point you are try to negate, the fact still remains that your point happens less then 50% of the time, otherwise you would use words like "happens the majority" or "most of the time". But, you know you cant use such words because you would be lying.

    Thus, if your point does NOT happen most (or the majority) of the time, that must mean that the opposite of your point DOES happen most of the time.

    Most people (or the majority of people) would naturally prefer a system that works most of the time, not just "often" or for "considerable" amount of the time. They simply would rather it work correctly more then when it's doesn't work correctly. Its simply common sense.

    So, no matter what words you try to use to artificially inflate your point, if your point happens less then half the time, but the opposite point occurs most of the time, the opposite point is clearly a better point. Period. Very simply math here.

     

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  9.  
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    Anonymous Coward, Dec 14th, 2008 @ 1:09pm

    Re:

    In view of the way this site defines "innovation", then clearly "considerable innovation" transpires in every country on the globe. I am certain that in Bangladesh some enterprising chicken farmer has figured out a way to beat his competition by bringing fresher chickens to the local outdoor market at a lower cost. This is certainly "innovative" in that consumer demand is being satisfied with a better product at a lower cost. Of course, he has to keep on his toes by continual investment in chicken R&D and constant improvements in his product lest he find himself overtaken by some other enterprising chicken farmer who can provide even fresher chickens at a lower cost to consumers.

    BTW, if by chance Bangladesh happens to have some form of patent laws, then simply substitute its name with that of a country that does not. If the other country does not have chickens, them simply substitute an outdoor market product that is sold in that other country.

     

    reply to this | link to this | view in thread ]

  10.  
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    Brendan Dunphy, Dec 15th, 2008 @ 3:28am

    Patent Pools Harming Innovation

    Even in country's with established patent systems (such as the UK) many firms tend to file for US patents given their perceived increased value, especially for technology patents. This is almost always the case in developing countries, with or without their own system.

    I agree that standards can be a constraint on innovation but they are often necessary to achieving the economic scale essential to realising the value of innovation (s), being a platform for further innovation as well as an economic tool for government. The best example of this is in cellular mobile where a political decision to adopt the GSM standard in Europe ultimately led to the dominance of GSM globally, in contrast with the US where multiple standards uncomfortably co-existed but thereby slowed adoption and increased costs. Which decision bred more innovation? If we look beyond the radio access component but include the whole eco-system around it (access device, the OS, the applications, content etc) then maybe its clear that even an inferior technical standard (as GSM was) is better for innovation than no standard at all?

     

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