April 18, 2007
Patent protection and technological innovation
There is a potential conflict between the two that we ought to revisit as the nature of technological advance itself undergoes profound changes.
Vonage Holdings Corp. says bankruptcy is among the potential risks from its continuing patent litigation with phone giant Verizon Communications Inc., as the Internet calling start-up's problems deepen....
The case pits the second-largest U.S. telecommunications company, Verizon, against a start-up that once promised to revolutionize the phone world by offering discounted Web-based calls. Instead, Vonage's existence is now in question as competition from cable and phone companies mounts and its legal woes have worsened.
A federal jury in Virginia ruled last month the company had infringed on Verizon's patents, and a judge ordered an injunction on its service....
Last week, Vonage said it would reduce its staff of about 1,800 by 10% and pare marketing spending in an effort to cut costs. Founder Jeffrey Citron reassumed the title of chief executive officer after Michael Snyder stepped down. Vonage's share price has fallen more than 80% since the start-up went public last May.
Nattering Naybob was deeply disturbed by the jury's decision:
[Alleged infringement of patents 711 and 574]: the "inventors" at Verizon "created" what could be called DNS for phone systems. This alleged patented "technology" is used by an Open Internet standard called ENUM , standardized in RFC 3761; "The E.164 to Uniform Resource Identifiers (URI) Dynamic Delegation Discovery System (DDDS) Application (ENUM)" copyrighted in April 2004 by The Internet Society....
[Alleged infringement of patent 880]: this appears to be a public/wireless/cordless gateway setup for wireless VoIP. The claims made in patent 880 are for the normal use of the SIP REGISTER method as defined in RFC 3261 copyrighted in June 2002....What Verizon claims as unique is simply the act of performing these operations over a WiFi gateway.
Naybob concludes that Verizon is simply abusing our legal system in an effort to quash a small competitor.
I don't pretend to be an expert on the technical details of the patent suit, on which Naybob provides a good deal more discussion. But I do know that from the perspective of economic theory, there is a fundamental tradeoff inherent in patent protection. On the one hand, enforcing a patent puts the government in the position of supporting and sustaining monopoly power, which as a general rule works to the detriment of consumers. The justification for this government-sponsored inefficiency is the desire to create an incentive to develop the new technology in the first place. The key question in a case like Verizon is whether the social need for their original research was sufficiently strong that we should now deliberately stifle further innovation and competition in the market to make sure Verizon continues to be compensated for their research. My impression as an outsider is that for many of the advances that we have seen in this area, it is competition itself rather than the hope of monopoly protection that has been the major factor motivating firms continually to innovate.
I also recently read Michael Crichton's Next. Crichton's gotten a bit preachy in his last two books, and I don't much recommend this one for its alleged plot. But the book does raise a relevant social issue as to whether courts ought to be in the business of enforcing patents for individual human genes. Again the relevant issues are, How much (if any) slower would scientific progress in this area proceed in the absence of this specific patent protection, and how does that potential social benefit compare with the social harm from using government power to create and enforce a monopoly? I also recommend (as always) Dave Altig's take on this point.
We have come a long way from the days when the U.S. Patent Office was first created. Perhaps it's a good time to revisit exactly what we want that institution to accomplish.
Posted by James Hamilton at April 18, 2007 09:22 AMdigg this | reddit
A tip o the hat and many thanks.. keep fightin the good fight...
Posted by: The Nattering Naybob at April 18, 2007 10:01 AM
Patents are property rights in virtual space; they are just as defensible as property rights in physical space. Without patents, discoveries become common property, and as with any commons we will see under-production of new wealth. Coase's theorem applies to patents just as much as to the physical world.
The problem with patents is simply transaction costs. It would be like governing physical property by having every speck of dirt potentially being owned by someone, with no way to find out who owns what until you get sued, and the need to acquire all the rights to all the pieces of dirt on a lot before you could build there.
This suggests that the real direction for patent reform is to improve transparency of the patent process and to invent (and patent!) institutions that make it easier for patent holders to license their rights without going through an exhaustive negotiation for every patent. We need the equivalent of a market system with standardized pricing for patents, rather than the current system which is analogous to treating each product as a hand-crafted original which requires an elaborate bargaining process for every transaction.
Patents are not being exploited to maximize wealth today because of these transaction costs. Whoever can find a way to open up this process will both bring great wealth to patent holders and energize the system of creation and discovery by making patents available for widespread use at reasonable prices.
Posted by: Hal at April 18, 2007 10:06 AM
The analogy between patents and land breaks down when you start thinking of the difference between
rival and nonrival goods. We traditional think of rival goods or those that can only be used one at a time. If you own a piece of traditional capital equipment you can control and collect rent on your innovation embedded in it. But once your piece of capital equipment becomes something like software or a recipe or a recording that can be used by many people at once and one person using it does not conflict with another person using it you get into a very different world.
And isn't this the problem, that we are getting into this new world more and more, where the cost and benefits and the established trade offs no longer work and we need to establish new rules?
So what we are seeing is the uncertainty associated with the transition from one set of established rules to a new set of rules.
Posted by: spencer at April 18, 2007 11:01 AM
As an engineer, I was taught that a valid patent requires a novel, non-obvious invention. The problem is that the patent office and the courts consider a valid patent to be anything that someone thought of before anyone else.
The inventions covered by the patents in this case, and in many other high profile cases (eg RIM, Rambus, jpg) are neither novel nor non-obvious. Any competent engineer in the course of their day-to-day activities would come up with the designs embodied in these patents. The fact that there are so many infringement lawsuits against so many companies (many of whom came up with their designs and products in the same time-frame as the patents were being granted) demonstrates this.
The patent system is irretrievably broken. Its main purpose today is to put money in the pockets of large corporations and lawyers.
Posted by: foo at April 18, 2007 11:36 AM
Gary Stix has written numerous columns regarding this issue in Scientific American, e.g. July, 2004
Later this year a book by Adam B. Jaffe of Brandeis University and Josh Lerner of Harvard Business School will describe what is wrong with the current system and then outline how it might be revamped. The book--Innovation and Its Discontents: How Our Broken Patent System Is Endangering Innovation and Progress, and What to Do about It (Princeton University Press)--is intended as an antidote to structural changes in the patent system made during the past two decades that have dramatically increased the rights of patent holders [see "The Silent Revolution," by Gary Stix; Staking Claims, June].
I don't have much familiarity with the issue - but I thought I'd post a link to at least one popularizer.
Posted by: James I. Hymas at April 18, 2007 11:47 AM
Thanks for taking this on.
The simple answer is no government monopolies.
Spencer, good post. Protecting intellectual property is only applicable if someone steals your brain.
Posted by: DickF at April 18, 2007 01:36 PM
As far as the difference between rival and non-rival goods, there are many uses of physical goods which are non-rival and yet we still respect property rights. For example, offering people the ability to pass over your property is largely non-rival but we still respect the right of the property owner to make this decision.
In the larger sense, being non-rival is actually a bad thing. Non-rival and non-exclusive goods like public goods are underproduced in a market economy. There is no way for the producer to be compensated for his costs to create the good if everyone gets it once he releases it. This is the classical problem with public goods and will apply to information goods if we do not have a system of enforceable intellectual property.
Posted by: Hal at April 18, 2007 03:58 PM
House and Senate propose the biggest changes to U.S. patent law in a half century:
Posted by: Charlie Stromeyer at April 18, 2007 04:34 PM
Thomas Jefferson wrote in 1813:
If nature has made any one thing less susceptible
than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of every one, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation.
Inventions then cannot, in nature, be a subject of property. Society may give an exclusive right to the profits arising from them, as an encouragement to men to pursue ideas which may produce utility, but this may or may not be done, according to the will and convenience of the society, without claim or complaint from any body. Accordingly, it is a fact, as far as I am informed, that England was, until we copied her, the only country on earth which ever, by a general law, gave a legal right to the exclusive use of an idea. In some other countries it is sometimes done, in a great case, and by a special and personal act, but, generally speaking, other nations have thought that these monopolies produce more embarrassment than advantage to society; and it may be observed that the nations which refuse monopolies of invention, are as fruitful as England in new and useful devices.
Posted by: Joseph at April 18, 2007 05:21 PM
The U.S. Constitution says: The Congress shall have Power ... to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.
That simple sentence has some important points.
1. Intellectual property is not a natural right but instead a legislative grant -- a social construct.
2. Intellectual property rights are granted in order to promote progress, not primarily to secure benefits to inventors.
3. They are for a limited time.
It would be hard to argue that the 1998 Copyright Term Extension Act which protects Mickey Mouse for 95 years is justified in light of either 2 or 3 above.
Intellectual property law should face a much higher burden of proof that it serves to promote progress. Instead each modification of the laws over the years have only served to enhance the perceived natural monopoly rights of inventors.
One of the biggest challenges facing domestic policy today is funding for health care. The fastest growing portion of health care is pharmaceuticals and the high costs are primarily due to patent monopolies.
The question we must ask is whether social welfare is maximized by drug patents. I think a strong argument can be made that current drug patent laws do not. Recent laws extended the monopoly from 8 to 14 years. Why 14 years? Why not 5 years? Why not one? Can anyone justify 14 years as necessary to promote invention of new and better drugs? And have no doubt that the costs are extreme. For example Claritin was a cash cow for Schering-Plough which charged $1 a pill. Today, after patent expiration, the cost is about 3 cents.
Drug companies are among the most profitable due to their monopolies, yet they spend only a fraction on R&D. They spend double the amount on marketing an administrative expenses that they do for R&D. Most of so-called R&D is really just clinical trials. The original R&D was done in government funded labs. The GAO found that 68% of new FDA applications are not for new inventions but for "me-too" drugs, knockoffs of other company's blockbusters with enough molecular differences that they evade patent restrictions and get a new patent of their own. So patent law is actually reducing the number of new inventions.
A better way to promote drug invention would be to take the hundreds of billions spent by the government on drug benefits and spend it on government research. Clinical trials could be contracted out for a fixed fee. The resulting drugs would be free to be produced by all manufacturers competing on their production efficiencies the same as generic drug manufacturers do today.
Posted by: Joseph at April 18, 2007 06:38 PM
I'm a named inventor on more than ten software patents, and the sole inventor on one for an idea that may actually be sufficiently novel and non-obvious to deserve a patent according to those criteria.
But I agree very strongly with foo's statements above.
The patent system that has evolved in recent years does not encourage innovation. It strongly discourages it -- patents are granted on design features that "new" only because the technological infrastructure to support them did not previously exist; once the enabling infrastructure was in place, they were obvious, and many are novel only in that they use new infrastructure. Numerous patents have been granted on the use of computers to do things people had been doing for years without them.
I've seen a number of patents granted in the last few years for technical ideas that had been discussed in my workplace many years before, and were not pursued further because the needed technical infrastructure was not in place, but which no one made any move to preemptively file a patent application on exactly because they seemed so obvious.
Two aspects of the patent system that strongly discourage people from starting new businesses are that patents applications in the US are secret until a patent is granted, and that one is subject to treble damages if in litigation it can be successfully argued that you knowingly infringed. So not only is it impossible for you to know whether someone has a patent application already in progress for an idea, it's a very bad idea to even try to survey issued patents yourself -- if you can be shown to have read a patent that someone argues you infringe, even if in your opinion you believe your idea different, you're in very deep trouble if the court doesn't agree.
Posted by: jm at April 18, 2007 10:54 PM
In my 20 years of software engineering I've seen dozens of ideas that I consider "obvious" to be declared "novel" by the patent office ... but maybe I should take that as a complement ;-)
For what it's worth, I think one simple error in our current public policy is that we allow researchers operating 100% on public monies (government contracts and grants) to patent "their" innovations. I get the theory involved (first that patents can sometimes spur adoption, and second that researchers can sometimes become self-sufficient in their funding), but I think it fails in practice.
I think careful study of the patent base would show that we, the taxpayers and funders for this research, simply pay multiple times.
Posted by: odograph at April 19, 2007 07:11 AM
(Actually I suspect that some fraction of these public-funded patents lie unused, and simply introduce an extra overhead on the public research process.)
Posted by: odograph at April 19, 2007 07:14 AM
Joseph's example of Claritin is telling. It went from a dollar a pill to three cents a pill when its IP protection expired. Does anyone seriously think that it would be better to eliminate IP protection for drugs so that new drugs could only be sold for 3 cents a pill? Does anyone think that we would still see pharmaceutical companies spending the billions of dollars and years of research necessary to get new drugs approved for human use, if they could only be sold for 3 cents a pill? No, the only way things would work in that case is with a fully socialized medical research industry, with the government funding all research, studies, and with drug development guided by political considerations.
I can't help wondering if this is the true goal of anti-IP advocates, to move us away from a market society and towards one based on government funding of all creative effort. Because that is the only real alternative.
Posted by: Hal at April 19, 2007 10:05 AM
Yes, the dollars and cents cost of medications falls dramatically when patents expire - but surely the existence of the patents provides the pharmaceutical companies with the incentive to keep producing drugs?
For example, given the total costs of developing a new drug and bringing it to market surely some form of patent protection is required to ensure that they are guaranteed to recoup some of those costs?
It seems unfair to focus on one aspect of the cost of pharmaceutical development without mentioning others, such as the necessity of obtaining FDA approval, lawyers' fees, materials, large amounts of very highly educated man hours man hours, etc. We would never think of allowing drugs on to the market without regulatory approval; the end products make us all better off; so why remove the producers' incentive to produce?
With all due respect to Dean Baker, unless I'm mistaken I think you're in danger of falling into the trap he sets for himself when he describes patents and copyrights as a form of protectionism. Copyright and patents exist to protect individual legal entities' right to profit from their own property - indeed, the patent or copyright is as sure a sign that they are the property's owner as the title deeds to their house.
Most homeowners wouldn't take in a lodger without expecting them to pay rent - why should IP holders be expected just to give their property away?
Protectionism, on the other hand, surely only concerns a state's restriction of access to its internal markets; whereas in pharma, there is absolutely nothing stopping GlaxoSmithKline and Pfizers going toe to toe to produce competing treatments for any number of conditions.
Posted by: Martin at April 19, 2007 12:56 PM
INOFLUMOXEDI can say without reservations, that patent and copyright enforcement serve to restrain rather than promote trade. The current cost of shepherding a patent application through the system in the U.S. is too cumbersome and expensive for most individuals and small companies to justify. The same high costs extend to enforcement and defense actions. Consequently, the "system" serves to protect large corporations and provide them with higher barriers to competition in both current and future products. Additionally, the current patent system is too disorganized (despite computers) for anyone (including patent examiners) to easily determine whether an innovative idea was previously filed or patented. To a large degree, China and India enjoy robust economic growth precisely because patent and copyright protections are loosely enforced. I would promote the following rules for intellectual rights:
· Patents extend for 10 years ONLY on products actually brought to market.
· 3 years maximum will be allowed to bring the product to market after patent issuance. Failure to do so will shift the patent to public domain.
· All patent applications must be accompanied by clear licensing prices for each claim in the patent. These prices will be published with the patent, and remain in force through the patent life.
· Periodicals enjoy copyright protection for ONE year from their date of publication.
The high cost of accessing relatively current technical literature except through large university research libraries, certainly stifles technical innovation, free flow of information, and the cost of product development.
· Books, theatrical products, and music would enjoy copyright protection for TEN years from their date of initial publication.
· All copyrighted material MUST contain licensing pricing with the material when published.
…. I loved HAL’s suggestion for a single clearing market of intellectual
property. Why couldn’t this be done by the patent office, with a small transaction
fee collected by it (to maintain the service), allowing data regarding license
sales to be publicly accessible with the patent?
Posted by: SchoenMark at April 19, 2007 02:14 PM
"I can't help wondering if this is the true goal of anti-IP advocates, to move us away from a market society and towards one based on government funding of all creative effort. Because that is the only real alternative."
No Hal. I think the best alternative is to let government fund basic research to produce public domain knowledge, while at the same time allowing private parties to race to the patent office, with their truly novel ideas.
If you are a professor worried about "money lying on the table" ... go get some funding and do your own research. I have no problem with that.
Don't conflate "no stupd IP" or "no IP at the public trough" with "no IP."
IP definitely has it's place, and worked pretty well until ... pretty much until it hit "new domains" of knowledge that made old rules for novelty obsolete.
The basic problem is that a dumb idea in a new domain is automatically "novel" under our system.
Posted by: odograph at April 19, 2007 04:31 PM
The root of the problem if you think the problem is overzealous granting of patents can be found in the appointment of incompetent judges to the CAFC. Just look at how many of them were in patent practice before sitting in judgement on that bench. And how many were engineers or programmers? Yet they set the rules for what is "non-obvious". Yes, they are political appointments, but really, can't we have some folks who know an amp from a volt and a jpeg from a giff sitting there?
Posted by: parknfly at April 19, 2007 06:46 PM
"Copyright and patents exist to protect individual legal entities' right to profit from their own property - indeed, the patent or copyright is as sure a sign that they are the property's owner as the title deeds to their house."
Their own property???
As the several of us who actually design and invent for a living have noted above, many of the ideas being patented nowadays are obvious to any competent engineer -- so obvious that most engineers won't consider them patentable. As the main body of this post above indicates, the novelty and non-obviousness of the Verizon patent claims are doubtful.
An alarming number of patents issued on software and business methods are for "inventions" that no one has any right to claim as "their property". If you happen to be the first person to use screws and a screwdriver to fasten some new product to your wall, do you think you have a right to receive a 17-year government-enforced monopoly on that -- that it is somehow, "your property"? That's what many of these "inventions" amount to.
Moreover, in many cases the people getting the patents aren't even the first to invent. Although the US patent system is nominally based on the "first to invent" rather than "first to file" principle, that applies only to the decision of who gets the patent if more than one application is filed. If you don't file an application because you consider a technique too obvious to be patentworthy, but someone else does, then you can be sued for infringement even if you were in fact the first to invent. Only if the technique has been publicly disclosed do you have any protection.
*(There was talk of modifying the law in this area -- I don't know if those changes have gone through.)
Posted by: jm at April 20, 2007 07:15 AM
About novelty of obvious application in a new domain.
I am a patent examiner in Europe, I don't deal with business methods or software, but automotive technology, luckily.
You should mention the philosophy of the management in the patent offices as another important factor in the multiplication of trivial patent. Knocking down an obvious patent if pushed forward by a tricky lawyer (I love you lawyers, especially the american/british school) is time-costly.
I personally recall denying some application akin to claiming novelty and therefore obviousness for screwing a new product on the wall, but the more I get experience in my job, the more I understand it is against my best self-interest. The only barrier remaining is my fading engineer self-pride and technical background.
You may read this open letter:
You know (Hal, are you listening), a contributing factor is the pervasive opinion that government worker are lazy, unneeded worker. You can't fire them all, so at least just let them produce more, and let's give more power to the MBA types.
In a Knowledge-based organisation like a patent-office, problem is, those second rate MBA-managers put in place silly quantitative indicators, instead of soft ones like the individual pride of a well done job. It is wrong, because any patent examiner is skilled enough for gaming such indicators, and you would have to spend half so much time of an equally technically skilled controller for catching him. So you end with one of with one the fastest career-track guy having granted something akin to home-made spaghetti bolognese, just nicely wrapped in new clothes by a lawyer. The guy was so productive, you know, he had to be promoted...
I have heard the USPTO was the first down that road, but bottomed out 2 years ago and is trying to swing back. But we are all left with the backlog caused by the already granted trivial patents , triggering the death spiral of more unsound/unclear application of patent trolls, big companies or lawyers trying to overlawyering the patent examiners.
Posted by: europatent at April 21, 2007 02:34 AM
I forgot: I have nothing in theory against making patent examiner more productive.
My problem is when that productivity is measured as a number of GRANTED patent, satisfying "customers" - not applicant anymore- instead of the public at large.
I could rant against MBA-mentality again, which in absence of a notion of appropriate public service, rely on the hammer of the customer notion.
But to be honest, the mother of all incentives comes from higher, indeed form the lawmaker, making the USPTO having to earn his money from the fees, and in Europe the EPO governing body made of national office equally making a living form GRANTED patents.
Public agency as a profit center: the law of unintended consequences at work.
Posted by: europatent at April 21, 2007 02:51 AM
Sorry for the typos and spelling mistakes.
most egregious: "novelty and non-obviousness"
Posted by: europatent at April 21, 2007 03:00 AM
Hal et al,
I, myself, am the inventor of several patents. Several of them should not have been granted, because they weren't novel enough (in my own opinion). I applied for them because my company rewarded us for filing patents, even if they weren't granted.
The point of this is: It's entirely to easy to be granted a patent on what is trivial or obvious, when you are dealing with software patents.
Many of these patents are like getting a patent on the "novel" idea of making a handle for a knife, of plastic, when it's well known that you can make handles from stone, wood, bone etc. It's not worthy of a patent, it's not novel or non-obvious.
I'm not saying that IP doesn't need protection, I'm saying that it's too easy to get a patent on some trivial invention and then use this patent as an anti competitive tool against financially weaker players.
Posted by: bellanson at April 21, 2007 10:02 PM
europatent, many, many thanks for your excellent comment, which is especially on target regarding the evil effects of privatizing the US Patent Office.
Don't feel shy about spelling errors -- the number of college-educated Americans able to do even half as well in any language other than English is vanishingly small. I am always enormously impressed by the ability of continental Europeans to communicate effectively in English.
Posted by: jm at April 22, 2007 03:08 PM