Thursday, April 12, 2012

patently obvious

How does it work?

Australia's favourite economist (yes, really), Ross Gittins, penned a recent article about his thoughts on the patent system. The sub-editor gave it the snappy headline: It's patently obvious that the system is broken.

It's becoming quite fashionable to question the basis of the monopolies given by intellectual property rights. Why should Facebook have a trade mark registration for BOOK? Free culture enthusiasts argue that copyright is too restrictive. And now we have a very thoughtful article questioning the very basis of the patent system. It is a great article - very thought provoking - and I urge you to read it in full. To entice you, here are a few of Gittin's pithy points:

The reason reform of intellectual property should be high on the productivity promoters' to-do it is that we seem to be drifting ever closer to the point where its costs exceed its benefits...
So what's the problem? Much of it is that the whole area has been taken over by lawyers. It's become hellishly legalistic, complicated, loophole-ridden and expensive. In the process, the lawyers have lost sight of the economic object of the exercise. It's become an area of endless battles between businesses arguing over their rights...
It's too easy to get a patent - you can get them for very obvious ideas - and patents can be too broad, covering yet-unthought-of uses. 
You can get a patent for something that's very similar to someone else's patent. But because they're handed out so easily, you often don't know whether a patent is valid - whether his patent beats your patent - unless you spend between $5 million and $7 million battling it out in court. The high cost of litigation means big businesses regularly intimidate small businesses. 
This problem of ''fuzzy boundaries'' to patents is so bad some businesses make a living buying up dodgy patents, then threatening to sue legitimate patent-holders. The victim pays what amounts to protection money to avoid the higher cost of a court battle...
It's got so bad in the US that, according to the calculations of a leading campaigner for patent reform, James Bessen, of Boston University school of law, for all US patents bar those for chemicals and pharmaceuticals, earnings from their patents are more than exceeded by the cost of litigation to protect those patents. He calls this a ''patent tax''. 
If he's right, the intellectual property system has degenerated to the point where it's actually inhibiting innovation. We're being forced to pay higher prices, but getting nothing in return.
Them's fighting words, but  as we watch the Battles of the Giants over patents - Apple v Samsung, Yahoo v Google - it's not a bad thing to go back to basics and examine the public policy reasons behind the whole set-up. The granting of patents is supposed to protect the inventor for a short period of time (14 to 20 years usually) from anyone else copying and exploiting the invention. This undoubted monopoly and market advantage is granted to allow the inventor to get a head start on commercialisation and reap some benefits from his/her inventiveness - and increasingly not only inventiveness, but also a great deal of money spent on R&D. The cost of bringing a new drug safely to market, for example, is astronomical.

But in return, the inventor is required to disclose exactly how the new invention/chemical/software etc. actually works. The inventor thus adds to the pool of human knowledge, and - as a practical matter - saves many other busy souls from having to reinvent the wheel. Others cannot exploit the patented invention (until its monopoly expires) but they can take the new knowledge and run with it to find even better ways of doing things or making things. And this is often what happens.

Gittins makes some useful points, but - for an economist - he does skate lightly over the very high cost of developing a new drug or new software to commercial usefulness. Why should the drug companies invest massive sums in R&D if they can't reap a commercial reward? If we insist they share their inventions for free, commercial reality surely says that they will just, er, stop.

This is a greatly simplified summary of the important policy issues surrounding the patent monopoly, but so is Gittins' article. There are several sides to the story, and a bit of lawyer-bashing is not enough to disguise that. If patent law has become too uncertain and complicated, by all means reform it. But...something about babies and bathwater...?

Here's a techdirt article on James Bessen, the US 'patent reformer' Gittins refers to. It looks like Bessen has been urging action for some years - his book Patent Failure came out in 2008. His main theme seems to be that while the patent monopoly does encourage innovation and investment in it, the return isn't fair because the rights granted by patents are too fuzzy and difficult to enforce. Gittins makes the same point - then blames the lawyers. Ho-hum.

Let's lower the level of rhetoric and examine patent law reform. Without forgetting why we have patents in the first place.

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