Responding To Critics: My View On Patents & Innovation

I seem to have started a firestorm by writing a post openly questioning how a patent attorney (i.e., Stephan Kinsella) could be of the opinion that it is preferable to have weak patent rights.  I openly questioned how and why any individual or corporation would hire a patent attorney who does not believe in the patent system and seems to think that patents are bad, perhaps even evil, and certainly the preferable model would be to have exceptionally limited rights.  I appreciate the debate that is ongoing in the comments to that article, but I remain extremely confused regarding the irrational arguments being made.  It seems facts are largely being ignored, and when they are being used they are distort reality, history and truth.  When I make direct statements about facts and history off handed non-responsive and dismissive statements are made along the lines of “if you hold that belief it is obvious you don’t understand.”  Saying that is fine, but that needs to be backed up with facts and argument, which is not happening.  We all know why that isn’t happening, namely because there are no facts or legitimate arguments that can be made to counter what I am saying, so rather than addressing them an artificially zen approach to deflecting and recasting, even ridiculing, is preferred.  Notwithstanding, below are my thoughts regarding some of what is being said.

Before getting into the substance, allow me to address what many will wonder.  Whenever I do this I receive e-mails from folks who agree with me asking why I even engage with those who clearly have no interest in engaging and refuse to actually have a fact-based, reality-based, historically accurate debate.  My primary answer is simple.  Not addressing these issues and the falsehoods thrown around to masquerade as truth allows those who are less knowledgeable and less informed to inaccurately conclude that the nay-sayers are correct, or at least have a legitimate and unassailable point of view.  Of course this is not true.  While they may have a point of view, and some of the nay-sayers are very well informed, articulate and to be taken seriously because they debate on a substantive level, the overwhelming majority, and I dare say the largest segment, simply speak loudly and they are heard.  The lack of merit to their arguments is secondary.

We are at a pivotal point in the historical development of the US economy, and getting things wrong will be a disaster.  The only long term viable industries that will create widespread jobs are those that leverage technology and innovation.  Gone are the manufacturing jobs, and as anyone in Florida knows service industry jobs are low paying and very unstable, hanging on the thread of the overall economic strength of the nation so there are those who can afford non-essential services.  There are many influential individuals who read this blog, some of who are patent/innovation industry insiders, and some who are casually interested but have great power.  Some of these folks are Reporters, scientists and government officials.  It is desperately important for those and others to learn the truth and see that the overwhelming body of evidence is against those who argue against a strong patent system.  On top of that, there is no support or justification for the suggestion, which I fear could gain strength, that the answer is to abolish the patent system altogether.

Without further ado, here are some reactions to the comments.

COMMENT:

“[H]ow do you know patents encourage innovation? I’m serious–how do you know?”

RESPONSE:

This is in reply to my comment that patent encourage innovation and provide incentive.  In making this comment I pointed out that even for simply kitchen gadgets it can easily cost $500,000 to go from idea to market, and easily cost well in excess of $500,000,000 (perhaps close to double) to get a drug to market.  It is logical to assume that this investment would not occur without exclusive rights because of what is known as the free rider problem, or perhaps better cast as a corollary thereto.  The person who creates spends whatever funds are necessary to create and those costs become akin to a weight around the neck of the creator.  It only makes sense to spend that money to create if that money can be recouped, so price is fixed so as to not only meet the marginal cost of production, but to recoup the laid out expenditures and also provide enough profit to make it all worthwhile, knowing there is substantial risk that any product or service may never recoup these costs and result only in overall losses.

So, first it is logical, but what proof do I have that it is real?  Anyone in the patent and/or innovation industry knows or should know of the literally thousands of companies that have been held hostage by the Dudas era Patent Office.  The Patent Office became a place where patent applications went to die.  The allowance rate sank, time to get a final decision exploded and this caused inventors and businesses to both not be able to acquire funding, and to lose funding they had already secured.  Whether anyone like it or not, it is 100% true that most investors, and in particular the sophisticated investors that are needed to make a business succeed, demand exclusive rights.  They understand the premise that without exclusive rights others can simply copy you and sell for less because they did not have the research and development costs.  So every patent attorney and patent agent I know has clients that could not get investment, could not get a licensing deal despite interest and/or had investors walk away or refuse additional rounds of funding.

The evidence is enormous on this point and on my side.  No one ever address this, and the reason is because if the nay-sayers acknowledge the truth and facts they lose on this point.  Those who may be predisposed to believe a weak patent system or no patent system at all is the answer, I ask you to demand a fact based answer to what I raise.  Investors simply do not invest without exclusive rights, and capital is necessary for a start-up business, for a business to expand and to seed the development that will lead to jobs.

COMMENT:

“Coming back to your comments about economics–you seem to think that if one understands economics, it is obvious why patent law is justified. (Am I incorrect in this assumption?) The problem is, as I pointed out in my links above, that study after study, based on standard economic paradigms and assumptions, does not conclude what you do. I’d sincerely be curious to know why you disagree with all these economic studies, and how you know that the patent system is indeed justified.”

RESPONSE:

This relates to my saying that there is a point at which price can be set to lead to a demand that will maximize profits.  I was summarily rejected by being told that this proved I didn’t know anything about economics, no substantive reply followed.  Although the comment above was longer, I still do not see a substantive response.  It is challenging to reply to this because I just do not know how to respond to those who ignore accepted reality.  There is indeed a price point that will create the demand at said price point that results in maximization of profit.  The point I was making is that there is a point at which the proper incentive is provided to yield the maximum innovation.  To much protection is unnecessary and goes against the Constitutional objectives.  To little protection means we don’t get as much innovation because no one will fund it.

COMMENT:

“Even you said 20 years is too long–presumably this means you think the benefits gathered from a 20 year term don’t justify the costs of the patent system… but a shorter term, say 5 years, would. How do you know this? I don’t know it. No patent attorney I know, knows it, as far as I can see. How do you?”

RESPONSE:

It is silly to have software patent term be 20 years from filing because if the software is 20 years old it won’t operate anyway.  For crying out loud, Vista is incompatible with stuff that is 2 or 3 years old.  On the other hand, if we want the pharmaceutical industry to work on truly life saving drugs, vaccines and treatments rather than focusing on lifestyle drugs that cannot be misappropriated under TRIPs, we may need longer protection.  This is a valid point, based on universally true economic principles.  I don’t care whether the Pope says there is not a maximal price-quantity point, because whoever says it is wrong.  To think there is not a maximal price-quantity point is to ignore reality and think a thought experiment is more correct that what actually occurs.  Everyone who runs a business knows there is a sweet spot for price-quantity, and an incentive based intellectual property regime should focus on finding the sweet spot to foster what we want, which is innovation.  The dirty little secret that Thomas Jefferson understood is that we hate monopolies, but if they result in a positive outcome for society then they should be tolerated.  Use and manipulate the greed predisposition in people for the benefit of society, that is what the patent system does and it is effective.

I don’t claim to know what the right patent term is, but a one size fits all patent term is just flat out stupid.  Why can’t we realize the obvious?  Protecting something for so long that it is technologically irrelevant is a waste.  Tying innovations up in the Patent Office until they are technologically irrelevant is even more stupid.  If we are going to be true to the principles set forth in the Constitution then we need to acknowledge reality and ask the question, namely how long should patent protection be if we want to maximize innovation.  The reason nay-sayers don’t want to address this is because while some inventions might deserve less than 20 years, a lot of inventions will require more than 20 years because the risk is so high and the amount at risk is unbelievably high.  So when they refuse to engage in the discussion be suspicious.

COMMENT:

“I’ve read tons of studies on patents and innovation, and never seen any that shows patents lead to more optimal innovation.”

RESPONSE:

Would you please stop reading studies and look at history!  Studies are done by academics with an agenda, are based on thought experiments, do not take into consideration important factors and are preconceived in order to come out with a particular answer.  These same folks that look at studies will absolutely and correctly point out that when something is funded by industry and supports industry it should be taken with a grain of salt.  Yet, when those with an anti-patent agenda do a study that concludes patents are bad, evil or simply not supported they are hailed as heroes for conducting truly independent and impartial research.  Get a grip!

The facts are clear, no studies are necessary.  When patent rights are strong industry that requires those rights forms.  When rights are weak industry does not form.  When rights transform from strong to weak industry leaves.  Look at the pharmaceutical industry.  A clear majority of the world-wide industry is located in the US, and because India has become a major player over the years Indian law was changed to protect pharma.  Pharma is leaving Europe, and is found no where the rights are weak or non-existent.  Also look at China.  Since the Chinese have taken steps to take patents seriously and steps to at least start to or occasionally crack down on copyright piracy and trademark counterfeiting, investment is flowing into China and companies are seeking Chinese patents.  That is not accidental, it is causal.  Also look at the countries, such as India and South Africa, that have taken steps to mimic US Bayh-Dole legislation, where government provides seed money, Universities do basic research and own rights and then license out to industry.  Everyone, including Vice President Joe Biden, acknowledges that Bayh-Dole is the most successful piece of legislation in the post World War II era.  It created no problems or unrest, and simultaneously provided enormous benefit to society, industry and the US economy.

I could go on and on and on, but it won’t matter.  These facts will be ignored, argued around or deflected and used to ridicule.  The reality, whether anyone chooses to accept it or not, is that history is filled with hard, indisputable evidence that shows the positive effects of a strong patent system.  History is completely absent of any proof that abolition of patents would be a good idea, or that weak patent rights are preferable.

COMMENT:

“I have been a software engineer my whole career (a bit of businessman too), and I have some amount of formal education in economics and law too. As far as I know, neither copyright nor patents were at any stage relevant for me for earning money. Does this baffle you? I simply use a different business method than a monopoly rent. That’s all.”

RESPONSE:

This does not baffle me at all, nor does it contradict anything I have ever said or written.  First, those who seek to obtain a patent on the hopes of licensing it to make money are fighting an uphill battle and overwhelming odds against them.  There are those who succeed, and will in the future, but it is a lot of work and there are just not a lot of success stories, although those who are successful can be very successful.

Second, if you are making money on an invention that is when a patent has its most value.  I tell people I prefer to work with those who will make money on their inventions even without a patent.  A patent is not a panacea, it is a tool.  If you have something that will make you money the laws of economics correctly state that there will be market entrants.  If you can make it difficult for there to be market entrants, or put up hurdles, that provides a business advantage.

Finally, if you are in the software industry and you do not have patents you are naive.  Who cares whether the patent is valid at the end of the day?  No one in the software industry, I can tell you that for certain.  If you are in the industry and have no patents you are a target, and targets get shot.  If you have a patent then you are respected.  Big companies do not sue little companies for infringing software patents, small companies sue big companies.  Big companies can and do push little companies around if they do not have patents,  but fear them if they have patents.  A patent is the great equalizer in the software space.  It is an insurance policy, shield, sword and deterrent all at the same time.  So I would not be proud of not having any patents.  You don’t have to use them, and you should hope you never need to use them.  But when you don’t have them because of a philosophical aversion you need to realize you are not being responsible and building on a house of cards.

Source : http://www.ipwatchdog.com/2009/09/30/responding-to-critics-my-view-on-patents-innovation/id=6421/

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