The case against patents

October 10, 2012

Over the past year, it has sometimes seemed like tech companies spend more time on battles over patents than on inventing new products. Apple sues Samsung. Samsung sues Apple. Google sues Apple. Microsoft sues Google. The endless frenzy has prompted a number of onlookers to argue that our patent system is broken.


This may be getting out of hand (AP)

But now there's an even more radical case making the rounds—maybe we should just... abolish patents altogether. That's the conclusion of a eye-catching recent paper by Michele Boldrin and David K. Levine for the Federal Reserve Bank of St. Louis. It's titled "The Case Against Patents" and argues that our patent laws now do more to hinder innovation than to promote it. And, since there's no way to salvage the system, the United States would be better off scrapping patents entirely. 

Their argument is complex and has a few moving parts, so let's wade through step by step (and look at some counterarguments):

1. There's little evidence that stronger patents lead to more innovation. In theory, patents should lead to more innovation. That's the whole idea. If people and companies are allowed to own the sole rights to their own inventions and monopolize the profits for a while, that gives them more financial incentives to dream up neat stuff. Otherwise, why bother?

But it's less clear that this is true in practice. In 2008, Boldrin and Levine reviewed 23 major studies on the topic and concluded that they "find weak or no evidence that strengthening patent regimes increase innovation." For poorer countries, basic intellectual property protections can lead to a boost in R&D spending. But the returns soon fade. What's more, patenting activity isn't correlated with increased productivity. There's little reason to think that a surge of patents is a sign of an innovation boom.

2) Competition is often a more plausible driver of innovation.  Boldrin and Levine argue that a great deal of technological innovation, "from chemicals to cars, from radio and TV to personal computers," has historically taken place in young industries with many different firms vying for dominance. Think of the auto industry in the early twentieth century or the software industry in the 1980s and '90s. Patents are often non-existent in these fields or play a minor role. Instead, firms innovate to get a jump on their competitors. (The authors point out that Apple made huge profits on the iPhone simply by being first, years before it started deploying its patents to fend off Samsung or Google.)

3) Instead, patents are often used by established companies to maintain their position. It's typically only after an industry matures that patents get hauled out — often by stagnating firms trying to keep a grip on the market. A prime example here is Microsoft. In 1991, when the company was still a relative upstart, Bill Gates took a contemptuous view of software patents. But nowadays, Microsoft is wielding its patent arsenal to knock down rivals like Google who are leaping ahead in the smartphone race.

4) There are, meanwhile, downsides to strong patent laws. Even if patents do increase rewards for inventors, they also have negative effects. By creating monopolies, patents make new technology more expensive than it otherwise would be. They also limit the ability of other firms to compete. So there's a real cost to making patent protections more restrictive than necessary—or to granting patents to overly obvious inventions.

Endless litigation carries costs, too. In the past two years alone, smartphone companies have spent $20 billion stockpiling and suing over patents. Or consider "patent trolls," the derisive term for companies that don't actually make anything—they just amass patents and file infringement lawsuits for profit. A recent study from Boston University found that patent trolling has cost the U.S. economy $500 billion since 1990.

5) Any patent system will inevitably grow more and more restrictive over time. In the abstract, it should be possible to balance all these competing concerns. Boldrin and Levine concede that a well-designed patent system would be preferable to abolishing patents altogether. But, they insist, it's impossible to have a well-designed system. That's because as soon as the government starts granting patents, it creates a system that is bound to metastasize and grow more restrictive until it throttles innovation. 

Why is that? Established companies with patents have an interest in maintaining their hold on intellectual property, so they start lobbying lawmakers for stronger protections. Since they have more money than start-ups, the pro-patent lobbyists usually win out. Meanwhile, patent offices and patent lawyers have a vested interest in granting ever more patents—even trivial ones—and seeing more litigation.

"Given this set of players and their incentives," the authors write, "the patent game can have only one equilibrium over time." In the United States, the patent regime started off relatively light and has only grown more restrictive over time, until we've hit the point where many experts think the system is broken. This, the authors say, was inevitable.

6) So, while there are plenty of reasonable ways to improve the patent system, Boldrin and Levine say abolition is the best option. The authors end the paper with a slew of suggestions for improving patent law. Courts could stop granting patents to an ever-expanding array of new categories such as software. Policymakers could reverse the burden of proof, so that only industries that demonstrate a clear need for patents would get them. Or the government could institute alternate policies to foster innovation, such as prizes — Evan Soltas has more on how prizes have boosted research in the past.

These proposals have been floated elsewhere. What's unique about the Boldrin and Levine paper, however, is that they don't think any minor reforms are sustainable. Even the best-tweaked patent system is likely to deteriorate over time. "This logic of political economy," they conclude, "brings us to the view that we should work toward a progressive dismantlement of the patent system."

7) And... the counterarguments. Now, Boldrin and Levine are putting forward a highly provocative argument here. Not all scholars are convinced. Richard Gilbert of UC Berkeley has argued that Boldrin and Levine are vastly underrating the importance of patents for fields like pharmaceuticals or genetically modified seeds, which deal in hard-to-develop formulas that are easy to replicate. Just because software patents are controversial—they often involve abstract concepts like "tap to zoom"—that doesn't mean all patents should be abolished. Gilbert also points out that the two haven't made a case that prizes or direct government funding for R&D are actually superior options.

Another review (pdf) by John Kennedy points out that limited patent reforms are more likely to promote innovation than abolishing patents entirely. If it's possible to strike a decent balance, why not just aim for that? So a lot depends on whether one accepts Boldrin and Levine's arguments about lobbying and political economy. Both reviews are worth reading as counterpoints.

Further reading:

—The New York Times took an in-depth look at patent battles among software giants.

—A look at why even people in the tech industry think software patents are unworkable. 

—Alex Tabarrok offers his own review of an earlier book by Boldrin and Levine.

—Everything you need to know about Congress' recent efforts at reforming the U.S. Patent Office. (Short version: They were extremely minor.)

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