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Patents Don't Pay
tarball_tinkerbell sends us to the NY Times for word on a book due out next year that claims that beginning in the late 1990s, on average patents cost companies more than they earned them. A big exception was pharmaceuticals, which accounted for 2/3 of the revenues attributable to patents. The authors of the book Do Patents Work? (synopsis and sample chapters), James Bessen and Michael J. Meurer of the Boston University School of Law, have crunched the numbers and say that, especially in the IT industry, patents no longer make economic sense. Their views are less radical than those of a pair of Washington University at St. Louis economists who argue that the patent system should be abolished outright.
It doesn't surprise me that patents tend to be expensive & useless. The only place they are of any real use is in court. Any business model that has "time in court" from the get-go is probably not such a great model.
Especially in the world of computers it seems that so many of the patents are of questionable validity. A lot of software-related patents end up getting invalidated due to prior art when the patent holder tries to enforce it. Why do you think Microsoft isn't publicizing the list of patents that it claims linux infringes on? Tons of people will try to dig up prior art as soon as they know what patents MS claims are being infringed upon.
The Pirate Party also claims, with good justification (although a bit less of it in English), that patents should be abolished outright. Good to see some others chime in.
Are they counting opportunity costs? If having a patent allows you to get into patent detente with other patentholders, then the patent saves you the license fees/amount you'd be sued by that you'd accrue if you tried to operate without it. That's where the value of patents truly lies.
If the big companies all file for a bunch of patents it raises the barrier of entry very high for would be competitors. They may not get any revenue from these patents but they save a lot from not having to deal with smaller companies taking their business.
I mean the whole point of the patent is to give its inventor exclusive license to be free from competition, the author of this piece doesnt take that into account at all. Im not saying that this is good or bad for innovation, just that there is significant financial incentive that the writer fails to account for.
From the 1990's, for publicly traded companies only. Mainly due to litigation costs.
For others patents did better:
Mr. Bessen said that besides girding the pharmaceutical industry, the system did seem to work reasonably well for small companies and individual inventors.
I know slashdot editors hate IP as much as they hate nuance, but the headline does not refect this guy's research.
This has been invented already.
Its called "copyright".
This sig does not contain any SCO code.
He's always considered patents to be a gigantic ripoff for everyone but patent attorneys. A lot of people dismissed his anti-patent rantings in the early 90s as net.kookery, but it appears he was ahead of his time.
google started the trend: information is the most valuable thing in the world. a close second are the people who control and can quickly assess and manage information (as a group) are the second most valuable thing.
No longer are the widgets and doohickeys manufactured in large plants the items of value - and the concomitant world of patents to protect them. Frankly we have way too much stuff already, and mostly the need for more physical stuff is artificially manufactured by ads and more-pompous-than-thou one-upmanship insecurity. It's bags o bits, and bags o water that are the future, my boy.
In short: "Well, duh."
Everyone thinks they are special. It's a fundamental human attribute.
How else would you explain the people who play the lottery? Gamble at casinos? Think that out of all the millions of oppressed masses, _they_ are the ones who will live the American dream and become someone?
It makes life more interesting; without that drive there would be little innovation, little hard work and drive, few no obsessively hard workers spending three years of nights in a garage writing software, no interest in going for American Idol... ok, scratch that last one.
In the same way companies, which are only an aggregation of people, will think that they can be the one out of a million who will benefit from patents. Even if you can empirically and theoretically show that they are being taken up the arse by a banana. Human nature. Infuriating, isn't it?
Beep beep.
I RTFA, and I still don't know how he counted profits.
And that doesn't even factor in the fact that many IT patents last, what, 17 years. So it's also a gamble on the future needing that IP.
Your ad here. Ask me how!
They first flew under barely controllable circumstances Dec 17, 1903, but then spent several years trying to keep it secret, or at least not publicize it, while they made it practical. They used wing warping which physically bent the wings to control roll, and in order to get around this patented idea, Curtis, in 1908 I think, invented ailerons, hinged sections of wing which have been in use ever since. The Wrights spent the next ten years in court over the matter, and it wasn't settled until the US government forced a settlement when it joined WW I. The Wrights never did much at all after the first few years except sue the competition in court. Everyone else made advances in the technology, but not the Wrights, and they later had to merge just to keep the name in business.
A real lesson in the relative merits of innovation to stay at the front of the pack instead of dying in court battles.
Infuriate left and right
Let's say you invent some new physical item, obtain a patent and line up licensing with a manufacturer to produce the product. In the first six months you manage to line up significant interest in large retailers for this product and the money starts flowing in.
Two months later you discover your retailers are deserting you and are buying an identical product made in China. Your revenue ceases because nobody wants your overpriced product when they can buy the cheap knockoff made in China. Unless there are substantial reasons to purchase your original (which there probably aren't), nobody is interested.
You are now looking at your investors that put up the money to get the product manufactured and advertised. They would like the big returns you were promising them and looked like they were going to get. Instead, you are bankrupt and have no friends (they were all investors).
50 years ago US Customs would have blocked the import of a patent-violating product. I don't know when they stopped, but today it is common to find products made in foreign countries that violate US patents and other licensing agreements. Where do you think all those cheap DVD players come from when it is $5 per player for the license? Any player under $100 retail is unlicensed and the Customs folks know it.
Rule 1: If it is a physical product that can be duplicated, it will be.
Rule 2: International trade is a race to the bottom with the lowest cost winning, always.
Rule 3: Patents and copyrights are only as good as the enforcement behind them.
Today, enforcement is a joke. You can sue someone in the US for violating a patent, but if they are violating it from outside the US (say, from China) you can't sue them. China would laugh - they don't enforce US laws. Customs will not block imports. Do you believe you can sue Wal-Mart for selling the product? You can't prevent people from getting cheap stuff - it is almost the 11th item on the Bill of Rights these days.
What this means is that patents are only good as tokens to impress potential buyers of a company with.
So how do you keep something from being duplicated? Have some encrypted software required to operate the device. The R&D effort to duplicate the development would make copying the product too expensive. Sure, they can copy the hardware but without copying the software they have a useless piece of junk. Maybe you can license the software to them, but doing so would be suicide - it turns your company from a hardware vendor into a software supplier.
The purpose of patents were to improve inovation and make the results available to society. Before patents were introduced, people would try to protect their inventions by keeping the details as secret as possible. Patents are supposed to get them to reveal the details by getting a timelimited monopoly in return. Then others can keep inovating by building on top and eventually the inventions will become free for everybody to use. And anybody who sticked with the old habbit of keeping the details secret rather than patenting it would run the risk of somebody else being granted a patent on the intention.
That is how it was supposed to work in the theory.
In reality we see abuse such as companies patenting things they didn't really invent, companies patenting trivialities, and patents that don't include all the details which were the purpose of patents in the first place. If software patents weren't bad enough in itself, it is made even worse by them not containing the full source of a working implementation. If patent applications were really being treated within the original spirit of patents, any software patent application not comming with the full source would be rejected. And of course once the patent is granted, the source is published available for anybody to use as long as they have a licensee for the patent. Once the patent expires, the source can be used essentially the same way you can use BSD licensed source.
Somebody seems to have forgotten why patents were introduced. And some companies seems to want to not only keep, but also extent patents (and copyright as well) because they want to make money from it. If making money is the only reason for keeping those kinds of protections in place, they should be abandoned. But for gods sake, don't make the big mistake of abandoning them only for economical reasons. Rather think the system over again and adjust it to serve its original purpose, even if that means companies will make less money on average.
Do you care about the security of your wireless mouse?
Drug companies don't do the basic research that leads to new treatments. Drug companies do research necessary to bring drugs to market. In the past they had agreements that forced university researchers to keep mum if they found adverse side effects of the drug under test. Treatments that don't result in profit for the drug companies aren't researched. Drug companies often make minor changes to a drug just so they can keep it patented for another seventeen years.
Drug companies game the patent system like crazy. We would probably be much better off without drug patents. Research could then be re-directed to non-drug (cheaper) treatments.
Patents weren't supposed to be about ideas. They were supposed to be about implementations, specific ways of making ideas work in the real world. The Founders were pretty clear about that. The problems came in (as so many do) when we stopped listening to them.
The higher the technology, the sharper that two-edged sword.
They only counted the dollar value of having a patent vs. not having it.
They didn't count the value of the leverage of having a large portfolio when used against another company that has a large portfolio.
If a large company unilaterally stopped accumulating patents, pretty soon it would have to start paying everyone, not just the patent-holding companies, royalties on patents it needs to license. As it is, you can just horse-trade your patents and call it even.
Without a systemic fix, large software companies like MS and IBM won't totally abandon patents any time soon.
Knowledge is how to play a game, intelligence is how to win, wisdom is knowing what game to play.
The system is, unfortunately, rigged such that a modern startup needs patents. First, they need to stockpile them against existing companies who would rather litigate than compete. Secondly, they need to be able to measure, in some tangible way, how much "innovation" they've done, for the benefit of investors.
The latter point is critical. The value of a startup should be based on how valuable the products are. A patent is an asset which increases the value of the company, even if it's a loss-maker by itself. It's used as a measure of how much innovative stuff is in your product, even though the only value of the innovation is in the product itself.
I'd like to hear some suggestions as to how we could show the value of innovation without patents. I'm sure there must be a better way.
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I just filed for a patent and the comments here don't reflect the current situation re: software patents. Basically, the Supremes made it a lot harder to get a patent. The intent is to increase the value of good patents, filter out the copycat trash, and reduce litigation overall. A patent is a "teaching". You give up trade secret protection in return for patent protection. It's not code; that's protected by copyright. I think the premise of the NYTimes article is silly. Patents are part of a large IP 'eco-system' and judging the value of patents requires looking at the whole system. From my point of view (small company, great new idea) I think a patent will make my company more valuable in an acquisition. I absolutely have no intent or interest in defending this thing. Leave that to the stable of attorneys in the acquiring company. Thus is is absolutely a good for the small company / entrepreneur to have patent protection in that it motivates me to both innovate and then publish the innovation.
You can't stop China (the US won't even try since they own our debt) so there is no real value to patents anymore.
That's it, the end. Make a product, China will rip it off and sell it for 1/2 the price. Make a web/software product and they will copy it. I've had one of my websites mirrored entirely, tweaked, and put up in China (for an open source product, so I don't know WTF the point was).
Patents would have some value if they were enforced, but they are not. Add to that the fact that less then 1% of patents are in any way valid to start, and the system is just silly. They do let large companies intimidate small companies, and easily put them out of business with lawyer costs, so the system lives on.
- Adam L. Beberg - The Cosm Project - http://www.mithral.com/
I've only worked for small companies and every single one of them (six?) have been dragged through courts on patent/trademark issues. Usually both. Usually from the leader of the industry.
I also suspect he can't possibly quantify the amount of money submarine patent owners are making. After all they are taking on the biggest of the big companies in the U.S. The money to lawyer-up doesn't just appear.
So, it does pay. It puts small companies at a perpetual disadvantage. Considering the author's publisher, it will probably get way more consideration than it should.
I didn't bother reading TFA, so mod me down if it doesn't matter.
http://www.maxineudall.com/2010/02/should-economists-be-sued-for-malpractice.html
Watching that happen to the company I used to work for. It's a really funny thing to watch. I'll tell the story without too much detail to avoid any hot water that might land myself in.
My former company - they make a widget. A specialized consumer widget. Other companies make similar widgets. They all began a patent war.
Widget for my former company has feature A and feature B. Other company patents the idea of combining features A and B in the widget. Company now has to make two widgets, one that does A and one that does B, even though the functions are complimentary and easily related. Obvious. And so on, and so on, and so on. The company would pay you if you had a patent idea there, so they would have something new to beat each other up with. Situation continues for years, with these small companies carving up the widget patent space so tightly it becomes a maze of legal decisions to simply make a non-infringing widget. Two main players emerged, my former company and one other.
Then, super-huge conglomerate X shows up in this widget space, and buys both major companies in the battle, as well as a couple of the small ones. Anyone see the punch line yet?
They didn't care about the companies - they wanted their patent libraries to lock out competition. Soon as they shored up their position in the market, they dismissed the engineering staff for all the companies but one - and outsourced the widget to China. And now that widget's market is locked up. There are no entry level players in this widget market anymore. Just megacompany X, and their single Chinese knockoff.
Sometimes everyone loses a patent war.
Weaselmancer
rediculous.
Another use: Defending yourself in case you're accused of violating somebody else's patent. The more obvious patents you have, the more likely somebody else is to violate one of yours. If you ever get accused, you then may have the option of negotiating some cross-license deal.
So many companies are basically investing a lot of money into patents due to an issue caused by patents themselves.
This article is saying that being a big company with an R&D department designed to churn-out patents isn't worth it because the litigation costs more than the patents bring you.
The article is not saying that patents in general, or even software patents, aren't worth it. It only looks at aggregate statistics for the entire market. So if you are a developer or engineer who creates something new and unique and wants to patent it to protect yourself, go and do it. Nothing in this article is saying you should not.