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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.
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.
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?
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.
I have always wondered where people get this idea that drug companies dont do research, they just take something from universities, slap a patent on it and sell it. Yes, some of this stuff is based on things that had some basic work done in universities, but guess who funds that research! Yup, evil old big pharma! These university departments get huge sums of money from those nasty drug companies.
Pfizer spent 8 billion dollars on research and development last year.
Merck spent 5 billion.
Novartis spent 5 billion.
And so on, all the big pharma companies have R&D budgets of that size.
So my question then, is if you honestly believe that this R&D isnt producing anything meaningful, where on earth is this money going? You think they are just flushing money down a rathole since according to you they have never actually produced anything meaningful? Really, I want to know, do you seriously believe that all these billions in R&D are just wasted? Do you think that for the past century they have continued blowing all this money, never seen any results from it, and noone ever stopped to say "oh hey where are all those billions going?"
Drug companies may try to game the system some with patents, but its not like they are just sitting there not producing anything of value. There may be some validity to the complaints people have about big pharma, but you lose credibility when you claim that they dont produce anything of value.