Tuesday, August 11, 2015

Patents considered harmful

Although at last count I'm a named inventor on at least a couple of dozen US patents, I've long believed that the operation of the patent system, like the copyright system, is profoundly counter-productive. Since "reform" of these systems is inevitably hijacked by intellectual property interests, I believe that at least the patent system, if not both, should be completely abolished. The idea that an infinite supply of low-cost, government enforced monopolies is in the public interest is absurd on its face. Below the fold, some support for my position.

The Economist is out with a trenchant leader, and a fascinating article on patents, and they agree with me. What is more, they point out that they made this argument first on July 26th, 1851, 164 years ago:
the granting of patents “excites fraud, stimulates men to run after schemes that may enable them to levy a tax on the public, begets disputes and quarrels betwixt inventors, provokes endless lawsuits [and] bestows rewards on the wrong persons.” In perhaps our first reference to what are now called “patent trolls”, we fretted that “Comprehensive patents are taken out by some parties, for the purpose of stopping inventions, or appropriating the fruits of the inventions of others.”
Every one of these criticisms is as relevant today. Alas, even after pointing out the failure of previous reforms, The Economist's current leader ends up arguing for yet another round of "reform".

Even more than in the past those who extract rents via patents are able to divert a minuscule fraction of their ill-gotten gains to rewarding politicians who prevent or subvert reform. Although The Economist's proposals, including a "use-it-or-lose-it" rule, stronger requirements for non-obviousness, and shorter terms, are all worthy, they would all encounter resistance almost as fierce as abolition:
Six bills to reform patents in some way ... have been proposed to the current American Congress. None seeks abolition: any lawmaker brave enough to propose doing away with them altogether, or raising similar questions about the much longer monopolies given to copyright holders, would face an onslaught from the intellectual-property lobby.
The Economist's article draws heavily on the work of Michele Boldrin and David Levine:
Reviewing 23 20th-century studies [they] found “weak or no evidence that strengthening patent regimes increases innovation”—all it does is lead to more patents being filed, which is not the same thing. Several of these studies found that “reforms” aimed at strengthening patent regimes, such as one undertaken in Japan in 1988, for the most part boosted neither innovation nor its supposed cause, R&D spending.
The exception was interesting:
A study of Taiwan’s 1986 reforms found that they did lead to more R&D spending in the country and more American patents being granted to Taiwanese people and enterprises. This shows that countries whose patent protection is weaker than others’ can divert investment and R&D spending to their territory by strengthening it. But it does not demonstrate that the overall amount of spending or innovation worldwide has been increased.
It is clear that far too many patents are being filed and granted. First, companies need them for defense:
In much of the technology industry companies file large numbers of patents (see chart 2), but this is mostly to deter their rivals: if you sue me for infringing one of your thousands of patents, I’ll use one of my stash of patents to sue you back.
The number of patents in the stash, rather than the quality of those patents, is what matters for this purpose. And second, counting patents has become a (misleading) measure of innovation:
In some industries and countries they have become a measure of progress in their own right—a proxy for innovation, rather than a spur. Chinese researchers, under orders to be more inventive, have filed a flurry of patents in recent years. But almost all are being filed only with China’s patent office. If they had real commercial potential, surely they would also have been registered elsewhere, too.
Companies pay their employees bonuses for filing patents, irrespective of their merits. In the same way that rewarding authors by counting papers leads to the Least Publishable Unit phenomenon, and bad incentives in science, rewarding inventors by counting patents leads to the Least Patentable Unit phenomenon. It is made worse by the prospect of litigation. Companies file multiple overlapping patents on the same invention not just to inflate their number of trading beans, but also to ensure that, even if some are not granted, their eventual litigators will have as many avenues of attack against alleged infringement as possible.

Companies forbid their engineers and scientists to read patents, in case they might be accused of "willful infringement" and be subject to triple damages. Thus the idea that patents provide:
the tools whereby others can innovate, because the publication of good ideas increases the speed of technological advance as one innovation builds upon another.
is completely obsolete. The people who might build new innovations on the patent disclosures aren't allowed to know about them. The people providing the content as patent lawyers write new patents aren't allowed to know about related patents already issued. Further:
The evidence that the current system encourages companies to invest in research in a way that leads to innovation, increased productivity and general prosperity is surprisingly weak. A growing amount of research in recent years, including a 2004 study by America’s National Academy of Sciences, suggests that, with a few exceptions such as medicines, society as a whole might even be better off with no patents than with the mess that is today’s system.
The Economist noted that the original purpose of patents was that the state share in the rent they allowed to be extracted:
in the early 17th century King James I was raising £200,000 a year from granting patents.
The only thing that's changed is that the state now hands patents out cheaply, rather than charging the market rate for their rent-extraction potential. How about limiting the number of patents issued each year and auctioning the slots?


David. said...

Mike Masnick at Ars Technica points out that while The Economist's piece on patents is strong advocacy against the current system, the newspaper's position on this issue hasn't been consistent:

"But the really odd thing about this is that the Economist actually seems to keep changing its position on patents. Back in 2010, it had a similar article arguing that the patent system was holding back innovation and that it needed serious reform to get rid of "frivolous" patents -- including those for business methods and software. But then, oddly, in 2011, the very same Economist... argued we needed more patents and that they should be approved faster. That article bizarrely argued that approving more patents would undoubtedly lead to more jobs... based on absolutely nothing. And then... just months later, the Economist, once again, argued they were hindering prosperity."

4cdc8244-40f7-11e5-9f09-3bb7f530ccd7 said...

One would never pay a surveyor or cartographer based on the sheer quantity of borders they create, yet our patent examiners are paid in part by how many patents they issue.

David. said...

More on bad incentives in the patent system from Mike Masnick at Techdirt. Kyle Bass has set up an organization, the "Coalition for Affordable Drugs", which is not actually about making drugs affordable. It exists to make Bass money. He shorts the stocks of drug companies, then the coalition files for inter partes review of their patents to drive their stock price down.

The drug companies are understandably annoyed and are threatening to derail even the feeble current patent reform unless they get protection from having their, quite likely bogus, patents reviewed.

Tell me again how this can promote the Progress of Science and useful Arts.

David. said...

Stanford Law School's Mark Lemley has a paper up at SSRN entitled Faith-Based Intellectual Property. I guess he's on my side of the issue, the abstract is:

"The traditional justification for intellectual property (IP) rights has been utilitarian. We grant exclusive rights because we think the world will be a better place as a result. But what evidence we have doesn’t fully justify IP rights in their current strong form. Rather than following the evidence and questioning strong IP rights, more and more scholars have begun to retreat from evidence toward what I call faith-based IP, justifying IP as a moral end in itself rather than on the basis of how it affects the world. I argue that these moral claims are ultimately unpersuasive and a step backward in a rational society."

David. said...

In a Techdirt post entitled Turing Pharma Boss Martin Shkreli Defends Massive Price Increase As A Good Thing For Patients Tim Cushing looks at the 5000% price hike on Daraprim pills and makes some very good points:

" The original issue is patents. That has been mostly ignored by legislators and opinion pieces during the most recent push for some sort of drug pricing controls. And it will continue to be ignored because Daraprim's price hike is completely unrelated to patent monopolies. Turing's exclusive license for Daraprim includes only the use of the trademarked name. The patents have expired. Anyone can make it, but no one's been particularly interested in offering an alternative. (Maybe this will change now that a company has a chance to take on the villain du jour…)

But it's patents that make drugs unaffordable in the first place. New drugs are given, at minimum, 20 years of competition-free sales. That's two decades (at least) where drug companies can charge whatever they want because no one else can offer a competing product. Companies -- like Shkreli -- will claim they need this exclusivity to recoup "massive" research and development costs. But this simply isn't true. Pharmaceutical companies enjoy massive profit margins, much more than would be expected if they were faced with meaningful competition. The lie is exposed when patents expire. Prices fall dramatically once the market is opened, including that of the original manufacturer's."

David. said...

Startup L. Jackson sums up the situation.

David. said...

An East Texas(!) judge invalidated one patent owned by a troll and thereby dismissed 168 patent cases, 10% of his docket. Note merely did he dismiss the cases, but:

"The judge also invited the defendants to submit a joint brief as to why they should get attorneys' fees. Just the invite is a sign of changing times: in his four years on the bench, Gilstrap has never granted attorneys' fees to a defendant. It became easier to get such fees after the Supreme Court's Octane Fitness decision last year."

Life is getting harder out there for a hard-working troll!