Why Economists Think We Should Get Rid of Patents

Gabrielle Karol

patentsGoogle’s new promise? It’ll stop trolling.

No, the company, which made this announcement two weeks ago, hasn’t been posting nasty comments on message boards: It has pledged to start the fight against “patent trolling,” which is when companies attack others with lawsuits to defend their patents—even if they don’t intend to do anything with the technology they’ve patented.

So what does this mean for Google? Well, they’re starting out small: They’ve chosen ten patents and said that they won’t sue anyone else for using their patented technology—as long as they don’t get sued themselves. After all, patent fights can get extremely expensive: In 2011, Google spent more on patents than it did on research and development, and it’s not alone—competitor Apple did as well.

Google also urged other tech companies to adopt its “Open Patent Non-Assertion Pledge,” in which those companies would also agree not to sue others who had infringed on their patents. The goal is to create a tech community that is devoted to encouraging progress—not defending its territory at the expense of other innovators.

The company’s new stance is one example of a growing chorus of economists and tech innovators who think that patent litigation, in which businesses sue each other for infringing on their patents, is harming the industry. One example comes from voice-recognition technology, such as that which powers the iPhone’s Siri feature. One company in the field, Nuance, believing that start-up Vlingo was encroaching on one of its broad patents, sued, forcing Vlingo to spend $3 million on legal fees. While Vlingo won the suit, the cost proved so great, it eventually had to sell itself to Nuance anyway. Nuance technology is now thought to power Siri, though neither Apple nor Nuance will confirm it.

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In 2011, President Barack Obama signed a patent reform bill, which grants “first-to-file” patents rather than the previous “first-to-invent” patents, because under the old system, when inventors would come up with an idea at the same time, court proceedings were necessary to grant the patent. But at that time, the Berkeley Technology Law Journal suggested that the overhaul would give more power to big companies that have the resources to file first, stifling innovation at start-ups—and making trolling even worse.

Now, a paper from economists with the Federal Reserve Bank of St. Louis argues that our nation should get rid of patents altogether, in order to spur competition and innovation.

Would abolishing patents—which were created in order to incentivize inventors to invest in research and development—drastically reduce innovation in the United States? Or are the patent system and the expensive litigation that often accompanies it so harmful that they actually hurt the economy?

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The Benefits of Patents

Before we dive into all the reasons for eliminating patents, here is some of the conventional wisdom about why patents have been considered productive tools for our economy:

  • Patents help inventors profit. Patents give inventors the exclusive right to profit from their intellectual property.
  • Patents spur innovation. By providing incentives to inventors, patents are thought to promote innovation and technological advancements. Apple founder Steve Jobs has been quoted as saying, “We’re going to patent it all,” when it came to iPhone technology—and that even meant ideas that the company hadn’t built yet. By patenting its work—even if it never used any of the inventions—Apple could thus justify having its team spend time working on cutting-edge projects.
  • Patents help create jobs. Presumably, to turn a profit on an invented idea, an inventor would need a team to execute the concept, leading to job creation.
  • Patents spread knowledge. When inventors are granted patents, their innovative techniques and procedures are made public. Thus, patents could help others to innovate by giving them more advanced tools to build upon.
  • Patents help companies get funding. Venture capital funds and other investors may be more likely to invest in new start-ups if they have secured patents for their work. The Berkeley Patent Survey showed that 67% of companies’ negotiations with VC firms said that the firms in question had implied that patents were an important part of their funding decisions.

How Patents Hurt the Economy

When it comes to the most recent changes to the patent system in the United States, David K. Levine, one of the economists with the St. Louis Federal Reserve, likened it to “rearranging deck chairs on the Titanic.”

In “The Case Against Patents,” published in The Journal of Economic Perspectives, he and co-author Michele Boldrin write in their introduction: “There is no empirical evidence that [patents] serve to increase innovation and productivity, unless productivity is identified with the number of patents awarded.” Their research shows that the patent system in the United States is actually stifling innovation, and giving benefits solely to companies large enough to lobby in favor of their own self-interest. Here’s a look at some of their arguments:

  • Guest

    As international law currently stands, the US could not do away with patents because it has obligations under the
    Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) to maintain and enforce a patent system, with minimum standards of protection that TRIPS sets forth. TRIPS is a core WTO treaty onto which all member nations of the WTO must sign. That being said, there are a number of “flexibilities” or “policy levers” in TRIPS that allows a member nation to tailor, decrease, or increase the amount of protection its domestic patent law system provides (see what India’s government has done with patents in the pharmaceutical industry). So while the US could tweak its domestic patent law standards, it could never eliminate patents altogether and still comply with its international law obligations.

  • GuestII

    1. Patents help inventors profit.

    If one patent from one inventor prevents ten other inventors from making forward progress in a field like searching for a cure to cancer, then you would have ten inventors bankrupted, and one making a profit.

    2. Patents spur innovation.

    If one inventor makes money from an idea, then he can be funded to produce more ideas. Of course, if his idea is brilliant enough, then he can just take his money and spend all of his time racing lamborghinis. He’ll never need to invent again. And as long as he keeps renewing his patent, he can prevent anyone else from inventing again, as well.

    3. Patents create jobs.

    Sure, Edison vs Westinghouse. Edison could have won the courtroom battles necessary to put DC power ahead of AC, and not only would his temporary monopoly granted him billions; Westinghouse wouldn’t exist, and the only employer in electricity would be Edison. And DC power would make electricity 10 times more expensive than the AC power we live with today. That’s a healthy economy for job creation. Monopolies always make life interesting.

    4. Patents spread knowledge.

    More so than the ordinary academic pursuits? Good research cannot exist in a vacuum.

    5. Patents help companies get funding.

    True. They provide a defense from potential patent defense litigation, hence, improve a companies survival rating.

    Let’s imagine for a second, that in the US we had a group of lords and ladies that our forefathers hated so much. They were already rich from owning real estate. But in everything they believe that they deserve a cut in everything, as is their right from birth. The lowly peasants have found clever ways of inventing new processes and technologies and if they have enough money, they can rise to the financial level of the lords and the ladies. Of course, the lords and the ladies cannot have that, because, these nouveau rich could be a threat to their power. So they invent a concept of intellectual real estate, and supply it with laws so that if anyone tread upon this real estate, then they can be fined, and jailed within the fullest extent of the law. To buy such real estate costs $10,000, so an ordinary street rat cannot afford such a luxury for every new idea they have.

    This sounds like a law that would make all of the Edward Longshanks, Brahmins, and all other privileged people of the world proud. Just be careful that they don’t bring back ius primae noctis too.