Patent Rights: A Spark or Hindrance for the Economy?

Innovation and entrepreneurship are integral to America’s economic strength, and the U.S. patent system has been critical to nurturing this innovation economy.  Yet, there are some who continually argue that patents are a hinderance to economic development and the march of innovation. It will come as no surprise to anyone that I don’t believe that to be true.  In fact, if you actually look at he hard, cold facts objective individuals would all agree that the a patent system fosters innovation.  Patents do not hinder innovation.

What may surprise many readers, however, is that there are actually several well regarded academics who actually agree that the patent system fosters innovation. Yes, that is nearly heretical. Legal academics frequently take positions that would lead to the whittling away of patent rights.  Those academics simply ignore the realities that exist in countries where there are no patent systems.  They also ignore the reality that innovators require a reasonable rate of return in order to pump money into research and development.  In some cases it is many millions, even hundreds of millions of dollars that need to be invested.  It is naive to believe that anyone would spend millions or hundreds of millions of dollars without any competitive advantage. If a free rider could just copy and sell for less the creator would lose everything. That is not a model for success.  It is a recipe for failure.

In any event, on October 24, 2012, Professor Adam Mossoff of George Mason University School of Law sat down for a conversation with Professor Richard Epstein of the New York University School of Law. The conversation was sponsored by the Federalist Society and is available as a podcast MP3 download for those who are interested.

The conversation between these Professors was set thusly:

Patent defenders have responded that with every spike in innovation comes a corresponding increase in the number of patent suits, and efforts to weaken patent rights will inevitably lead to less innovation. With the passage of the America Invents Act — the broadest overhaul of the patent system in 50 years America — many people believed that the dispute over patent rights would recede. However, with a string of high profile patent infringement suits in the smartphone industry – and a new effort to roll back patent rights at the International Trade Commission certain patents held by so-called “non-practicing entities” (NPEs) – the debate over intellectual property has grown more intense. Would reduced patent rights diminish U.S. competitiveness and depress innovation? In a diversified economy, should NPEs have fewer patent rights than those that manufacture their inventions? Will innovation continue apace even if patent protections are scaled back?

In his opening remarks Professor Epstein explained that he comes from the question of patents from a different perspective than some. “The basic system of property law that we have out there for land and for chattels has worked pretty well for countless generations and the issue is how is it that we best carry it over into an area of intellectual property law so as to keep all of its desirable features and to try to eliminate any peculiar undesirable features that arise by virtue of this transition,” Epstein explained.

Epstein would go on to define the debate between whether patents foster innovation or hinder its progress:

The usual battle with respect to patents comes from a very different source which is whether or not the blockade rights that are created by patents are sufficiently dangerous or that one has to soften the system and I think in many cases what you see are all sorts of people who come up with the argument that a patent is, in fact, the way to deter innovation so that the release of various kinds of technologies or information from the patent system is probably gonna be a good thing.  This argument started early on, about 15 years ago almost now, in connection with pharmaceutical products where it was held that certain kinds of key patents would create bottlenecks, would generate an anti-commons for all the people who have to get together in order to make some kind of an invention to work would be unable to do so that valuable technologies would languish because of patent disputes.

In the initial pharmaceutical context I think that claim was basically overwrought.  You’re trying to find particular instances of drugs which had founded because of those issues and you discovered that generally speaking the market worked fairly well and that you could not point to cases where anybody would say certain technologies were left on the cutting room floor because of the blockade.  In some cases a patentee will turn a blind eye to somebody who’s gonna develop a complementary technology which will increase the value of his patent so that’s fine, and in other cases there are various devices that patent pools and cross licenses which will, in fact, deal with the subject and then in other cases certain ways in which you tweak the remedial structure so as to delay automatic injunctive relief to give somebody a chance to invent around a patent would work as well.

In more recent years we’ve had exactly the same argument take place in connection with business method patents on the one hand and with respect to software patents, on the other, where it has been held that the intrusive nature of these patents is sufficiently broad, that one is better off doing without them.

Epstein then went on to recount a recent debate he has had with an anti-patent advocate who is not particularly fond of business method patents and software.  As the debate usually unfolds the anti-patent advocate will characterize patents as some form of parasite.  Epstein’s responded to this nay-sayer: “give me some of that parasite so that I can do the same thing.”

Epstein exposes the basic, fundamental fallacy of the position of those who argue that patents slow business and prevent innovation.  Their argument is counter factual.  If they would just open their eyes they would realize that what they say with such conviction is not what is observed in the industry.  The anti-patent advocates would realize they are wrong if they would just open their eyes and acknowledge the factual and historical truth that object observers see.

Epstein went on:

One just thinks of the fact that five years ago Blackberry was the industry standard, dominant forever, and now it is basically exposed to ridicule because virtually it’s dropped to third or fourth on the distribution list.  You look at the rate of technological progress between then and now, it just doesn’t seem in any way, shape or form to have been slowed down so it seems to me that in face of rapid technological advance to say that the current system is a disaster is a mistake.

And that is where the anti-patent argument falls apart. You cannot with any intellectual honesty argue that patents hinder innovation or get in the way of technological advance or prevent business opportunities. The technology sector is moving forward at almost unimaginable speed. What was revolutionary several years ago is passé today.  This is a truth that everyone has to recognize as objectively true.  If patents were a hinderance it would not be true.

Alas, the detractors of the patent system have once again had their arguments shattered by reality.

Of course, what is above is just a brief expose of the wonderful discussion between two law professors who really get it.  Their conversation was approximately 54 minutes and I highly recommend it for those interested in a strong patent system.

Those interested in this topic may also be interested in another podcast of the Federalist Society, which will take place on November 6, 2012, from 2pm to 3pm ET.  The topic: Software Patents: Boon or Bane for Technological Innovation? Professor Mossoff will participate in this discussion along with Professor David S. Olson, Attorney Robert Sachs, Professor Mark F. Schultz.