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Step 1) Build a patent system that allows for innovation monopolies and fragmented ownership of new technologies.
Step 2) Watch it eat itself to death.
Ok, maybe it’s not quite that simple. Here’s a bit more context.
Earlier this week I had the opportunity to exchange tweets with @nakisnakis on some of the challenges surrounding the patent system in the U.S.
The U.S. patent system was developed with the intent of promoting innovation in order to serve the social good and spur economic growth. As patent theory goes, by providing inventors with a temporary monopoly on their technology or method you provide greater incentive for innovation. While U.S. patent law has in some ways served these ends, over the years it also has proven significantly flawed.
Excessive Patenting
For example, @nakisnakis‘s original tweet reminded me of an outstanding set of books by Henry Chesbrough – “Open Innovation” and “Open Business Models” – that confront the problem of excessive patenting within U.S. corporations. Chesbrough’s claim was that corporate R&D labs have come to patent any and every new development, just in case maybe, perhaps, someday, they might just use that patent to bring a new product to market.
In reality, the vast majority of these patents go unused because the products they support ultimately don’t fit the business strategy or business model of the company that originally filed the patent. Since nobody else can use the patented technology, however, the innovation is never allowed to benefit society.
In “Open Business Models” Chesbrough argues for more efficient and transparent secondary markets in intellectual property that would allow for these idle patents to be licensed to companies who will actually use them. Not a bad idea.
Independent Inventor Defense
A great blog post @nakisnakis shared with me during our twitter conversation talks through yet another problem with the patent system – the lack of an “independent inventor defense.” With the copyright system, the post states, people who develop similar ideas or works independent of one another have no claim to each other’s “property.” Not so with patents. There, the first to win the patent gains exclusive rights to the idea, even if it has been developed independently by others.
The Tragedy of the Anti-Commons
Finally, in a nice stroke of coincidence, I happened onto a recent EconTalk with Michael Heller, law professor at Columbia, discussing cases of excessive and ineffective use of private property in the U.S. His book, “The Gridlock Economy,” outlines, among other things, how the existing patent system fragments ownership of ideas and thus makes it overwhelmingly difficult to generate breakthrough innovations with the ability to improve health, transform industry, and save lives. This is because many major breakthroughs involve the innovative aggregation of more narrowly applicable existing technologies that are already patented. Identifying and gaining access to all of these patents would be so ridiculously costly that these types of innovations are left unrealized.
All in all, lots of reasons to not be very happy with the patent system (if you want to help change it, check out the bill proposed by Senators Leahy and Hatch).
What’s more disturbing is that this same phenomenon is playing out in a whole other and even more crucial part of our economy, with potentially very similar impacts. More on that to come.
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December 6, 2009 at 1:53 am
Paul Hudnut
“If I have seen further it is only by standing on the shoulders of giants.” Isaac Newton.
Much of innovation depends on combining ideas in novel ways. If those underlying ideas are patented by large corporations (who generally aren’t into licensing the stuff they develop but don’t use) it will increase uncertainty for inventors and reduce innovation. The Newtons of this century might have to say, “I gave up on seeing further as I was worried I’d be nibbled by midgets and trolls, and sued by giants. So I kept my day job.”
I am skeptical however, that this is as prevalent as your post claims. Do you have data to share on the concentration of patents in, say, the Fortune 1000? Are the really the biggest patent trolls? And, seriously, are they really the source of much of the innovation? Or are there industries where this is a bigger problem, such as chemicals and pharmaceuticals?
Much is being made these days of reverse innovation (a term I dislike) where innovations from India, China, etc. (those that have not been great protectors of IP and therefore, places where large corporations don’t file) are now coming into more developed markets (see recent HBR article on GE). It will be intriguing to see whether these countries, which have been slapped about due to their loose IP strategies, now see a boom in innovation as there economies continue to grow. Will they follow USPTO and Europe, or come up with a different structure?
Lastly, keep an eye on the Bilski case in front of the Supreme Court. As the economy moves to less tangible forms of innovation, this case will be very important, either making the problem you posit even bigger, or less and less important.
December 6, 2009 at 5:40 am
shoemakes
Thanks for your comments and insights, Paul.
It will absolutely be interesting to see how emerging markets decide to deal with intellectual property rights. I will keep an on they Bilski case, as well.
As far as data on large corporations and patents, I would have to do some digging into earlier reading to give you anything like what you’re looking for. However, as I recall from Chesbrough’s work, it is, as might be expected, largely technology, pharma and related companies who are the greatest “patenters.” In many of these companies, I believe he claims that well over 80% of the patents go unused.
For a breakdown of patents owned by, say, Fortune 1000 versus other individuals or organizations, it looks like one could start to compile that data relatively easy at the USPTO site (see http://bit.ly/7mClN2 for 2008 data, for example).
A quick look at the 2008 stats show that the top 10 companies that were issued patents claimed over 13% of the over 157,000 total patents filed. These companies were IBM, Samsung, Canon, Microsoft, Intel, Toshiba, Fujitsu, Matsushita, Sony, and HP. If you were to look at all of the Fortune 1000 or top 1000 global companies, I would have to believe the percentage of total patents owned would be incredibly high.