Here’s why economists hate software patents

July 31, 2013

Economist and software patent opponent Alex Tabarrok gives a TED talk on innovation. (Bill Holsinger-Robinson)

Should software be eligible for patent protection? With litigation over software patents increasing rapidly, it's an important question. And a growing number of economists are concluding that the answer is "no." The latest is Gary Becker, who made the case against software patents in a recent blog post.

"Disputes over software patents are among the most common, expensive and counterproductive," the Nobel Prize* winner wrote. "Their exclusion from the patent system would discourage some software innovations, but the saving from litigation costs over disputed patent rights would more than compensate the economy for that cost."

Moreover, Becker argues, "some software innovations would be encouraged because the inability to patent software will eliminate uncertainty over whether someone else with a similar patent will sue and do battle in the courts," a circumstance that has become increasingly common in recent years.

Becker is in distinguished company. Last year, another Nobel Prize* winner, Eric Maskin, wrote a letter to the New York Times pointing out that "in the software industry, progress is highly sequential: progress is typically made through a large number of small steps, each building on the previous ones." Maskin warned that "if one of those steps is patentable, then the patent holder can effectively block (or at least slow down) subsequent progress by setting high license fees."

Maskin concluded that "in an industry with highly sequential innovation," such as the software industry, "it may be better for society to scrap patents altogether than try to tighten them."

Alex Tabarrok, an economist who writes for the popular Marginal Revolution blog, also favors the abolition of software patents. He made the case against patents on software in a short YouTube video:

Economists rarely agree on anything. But it's surprisingly hard to find economists who think patents have been good for the software industry.

"I don't know of any economists who have taken a stance in favor of software patents," says Eli Dourado, an economist at the Mercatus Center at George Mason University and a critic of software patents. He acknowledges that "this may be simply because it's not an area that many economists think of as important and worthy of public engagement."

Indeed, to the extent that there's disagreement among economists on the subject of patents, it's often between economists who want to abolish only certain categories of patents, like software, and those who favor scrapping the patent system altogether. For example, Washington University economists David Levine and Michele Boldrine have called software patents a "particularly egregious and bad form of intellectual property," but that's not surprising given that they wrote a book called "Against Intellectual Monopoly," which calls for the abolition of all patents.

So far, the arguments of these economists hasn't made much of an impression on the lawyers who run the patent system. When I asked Paul Michel, the recently-retired chief judge of the nation's top patent court, whether he favored abolishing software patents, he rejected the idea, arguing that "broad categories treated pejoratively are going to lead us toward bad solutions." Doug Lichtman, a law professor at UCLA, once told me that a rule against patents on software would be an "odd way to divide the world up."

Instead, legal scholars tend to advocate more esoteric changes to patent doctrine to deal with the problems in the software industry. But there's something to be said for the straightforward approach favored by many economists.

* Yes, officially the prize is the "Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel."

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Brian Fung | July 31, 2013