The cost of ideas


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The cost of ideas
The Economist, 2004-11-13, p. 85

It is becoming ever more apparent that the patent system isn’t working

Intellectual property is the cornerstone of the modern knowledge economy. But one of the main forms of intellectual property, the patent—a temporary monopoly designed to provide an incentive to innovate—is increasingly being found wanting, even as the number of applications soars at patent offices around the world. America’s patent system has “become sand rather than lubricant in the wheels of American progress”, argue Adam Jaffe and Josh Lerner in a new book, “Innovation and its Discontents: How our broken patent system is endangering innovation and progress and what to do about it” (published by Princeton University Press). The world’s patent system remains splintered along national lines, yet the system’s defects are felt everywhere.

“Patent offices are under incredible pressure,” says Dominique Guellec, the chief economist at the European Patent Office in Munich. Applications at many patent offices have doubled in the past ten years, and the average length of each submission has increased by 50%. The average quantity of work required to examine an application is three times greater than it was a decade ago. “Of course that can’t be neutral in terms of quality,” says Mr Guellec.

In recent years, the scope of patents has broadened to encompass new technologies, as well as software, and in some instances business methods. Meanwhile, the legal power of patents, once awarded, has increased, and they are more zealously sought. This, combined with an alleged decline in the quality of patents—that is, how accurate their claims are and whether they are truly novel or non-obvious—is deeply troubling, especially as, once awarded, a patent is hard to revoke.

Patently absurd
In America, several controversial business-method patent awards, notably Amazon’s one-click payment process, have fuelled the perception that the Patent and Trademark Office (PTO) is under strain. A study by M-CAM, an intellectual-property consultancy, found that over 30% of patents make duplicate claims, raising questions about their validity. America’s PTO dismisses the criticism as anecdotal. “We’re seeing lots of new industries being born, that is why there are a lot more patent applications,” says Mary Critharis of the PTO.

The number of patent applications to the PTO is growing at around 6% a year. The wait for a decision is on average 27 months—and much longer for complex applications in advanced sciences. Last year, the PTO received around 350,000 applications and currently has a backlog of over half a million to review. It is a global concern: foreigners account for around half of all patents granted.

Similar growth is occurring elsewhere, including in countries that previously showed little interest in intellectual property. Applications to China’s patent office increased fivefold from 1991 to 2001. As countries such as China, South Korea and India spend more on research and development, they are filing more patents.

The mission creep of America’s patent system into more contentious areas is also spreading elsewhere. Later this month, the European Council of Ministers will discuss draft legislation on harmonising policy on computer-implemented innovations. Many small software companies in Europe, as well as “open-source” software developers that make non-proprietary software, oppose the initiative. They fear that it is a first step towards adopting controversial software patents, already awarded in America, which could block different implementations of the same features. Were further proof needed that this may not be an entirely positive development, look no further than the mighty software monopolist, Microsoft, whose chairman, Bill Gates; has called on employees to increase the number of patents that the company files.

The rising importance of patents has led both to an arms race and a game of bluff. Many firms in the information-technology and life-sciences industries say they have an incentive to obtain as many patents as possible as bargaining chips in litigation. The patents are used to reach a cross-licensing agreement, usually with some cash thrown in, so that both firms can continue to do business. Those firms that lack patents are thus disadvantaged.

Countries increasingly complain to the World Trade Organisation and the United Nations World Intellectual Property Organisation (WIPO) that the patent system discriminates against them. Indeed, WIPO recently adopted a “development agenda” to consider different intellectual-property regimes appropriate to the circumstances of a particular country or region. This was hailed as a boon for reassessing patent protections on drugs and for open-source software. Poor countries have long complained that America is trying to export its tough intellectual-property protections.

The growing debate about America’s patents is focused on the process of examining applications and the difficulty of challenging dubious patents. Patent examiners typically know less about an invention than the applicant. Moreover, their workload is far higher for rejecting than granting an application. This creates a perverse incentive for examiners to “dispose” of applications by granting rather than rejecting them, argue Messrs Jaffe and Lerner in their new book. To resolve this, they call for a pre-grant notice period when third parties can come forward with “prior art” that would invalidate the patent.

As for the second problem, legislation introduced into America’s Congress last month seeks to make patent-opposition trials easier for challengers by eliminating some legal hurdles. The legislation would also curb the granting of many forms of business-method patents.

As these reforms are debated, the scale and central importance of the patent system are also coming under assault. “The innovation system is broken in that there is too much emphasis on intellectual-property rights,” says Suzanne Scotchmer, the author of “Innovation and Incentives” (MIT Press), a book on the role of patents to be published soon. More than ever, she says, inventions that would otherwise go into the public domain because they are funded by taxpayers or charities become “cordoned off” by the patent system. If so, perhaps the patent system not only needs to be repaired, but shrunk?


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There's an interesting book on this, part of which is available online, arguing that because what is valuable is embodied intellectual property (whether that's embodied in people's brains, or in books or on CDs), and such embodied ideas are not public goods (that is, you can keep them secret, they cost money to reproduce and transmit, etc), capitalism can work just fine without intellectual property (or, as they call it 'intellectual monopoly' -- because we can have normal property rights in the things which embody intellectual property without special intellectual property rights).

It seems to me it's interesting to compare this with Hardt and Negri's argument that there is a growing reliance on intellectual property, meaning that capitalism is increasingly vulnerable as intellectual property is easier to expropriate. The fact that economists and The Economist are bigging-up the anti-IP argument suggests that simply being anti-IP isn't sufficient to be anti-capitalist.

(Incidentally, if anyone reading this is in the Cambridge area, you could come along to the next meeting of the Autonomous Study Project, where we'll be discussing just this topic).


Well-known member
From the enemy

I have connections with a large technology multi-national which makes US$1bn a year from patent licenses and protects an additional US$7bn in revenues thru cross-licensed patents.

My suspicion is that without radical reform the patent system will collapse within 5 years.

Instead you'll have companies identifying other means of protecting their intellectual property (which to be fair, they spend billions on developing). Copyright, and other legal agreements (together with sheer financial and legal muscle) will drive this.

Also, if you view patents an industrial-age legal/IP technology - then expect to see it come under attack from "disruptive" IP technologies - e.g. the embrace of the open source movement by major tech firms.


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Poland scuppers EU software patents directive

No majority, no more

By INQUIRER staff: Wednesday 17 November 2004, 13:53

THE POLISH government has declined to be a party to the a proposed Euro directive over software patents.

And that means the EU Council won't be able to formally adopt the directive on the patentability of computer implemented inventions.

According to Florian Mueller, at the web site, countries which supported this clause is unlikely to command a qualified majority.

That's because new voting weights kicked in the 25-member European Union at the beginning of this month.

The Polish government, although it had a flying visit from an €nvoy to push it in the opposite direction, said it wouldn't support the directive. After meetings with Sun, Novell, HP and Microsoft, the Polish government decided that the proposal in question was likely to make all software potentially patentable, which just won't do.

A number of countries including Luxembourg, Latvia, Denmark and Italy, as well as Poland, are now likely to submit amendments to the original idea.

Wladyslaw Majewski, president of the Internet Society of Poland,said: "The questionnable compromise that the EU Council reached in May was the biggest threat ever to our economic growth, and to our freedom of communication. The desire of the patent system and the patent departments of certain large corporations must never prevail over the interests of the economy and society at large."


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Larry Lessig at Stanford is a brilliant world authority on this.....but the interesting thing about the increasingly restrictive IP legislation is that it is becoming far easier to undermine than ever before - just about all audio visual protection is dead in the water......

Ness Rowlah

Norwegian Wood
Rambler said:
Wooo! Go Poland!

Not so quick. They have voted again recently and Poland saved the day once more.
But the whole thing is a farce.
You have parliaments being against it - but their representatives voting
for it (or abstaining from vote):

"Both the Dutch and German parliaments have passed motions requesting that their delegates change their votes. Because of the absolute immunity from accountability that EU officials feel they possess, they decided to ignore these requests. In any sane system, this could not happen"​

What happens next? No idea - and it does not seem like The Register does either:

"The question of what happens next is where things get tricky. The bill's opponents have called for lobbying to begin again in earnest, while its supporters have started wringing their hands about the possibly dangerous precedent of interrupting the democratic process."​
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MBM said:
I have connections with a large technology multi-national which makes US$1bn a year from patent licenses and protects an additional US$7bn in revenues thru cross-licensed patents.

My suspicion is that without radical reform the patent system will collapse within 5 years.

Why do you think this MBM? (just wanting some elaboration on your insights.)


Wrong said:
There's an interesting book on this,
It seems to me it's interesting to compare this with Hardt and Negri's argument that there is a growing reliance on intellectual property, meaning that capitalism is increasingly vulnerable as intellectual property is easier to expropriate. QUOTE]

Where could I find more about this argument Wrong? thx


Well-known member
Why do you think this MBM? (just wanting some elaboration on your insights.)

For many of the reasons given in Sphaleotas initial post.

The sheer volume of patents produced and the "mission creep" of patents in software and business processes in some jurisdictions is overwhelming the existing infrastructure. It's actively inhibiting innovation and business as usual for many small and medium sized enterprises.

The actual filing of patents (and searching for "prior art" within that process) has been time-consuming, enormously expensive, not to mention increasingly unreliable.

One small software producer I spoke to was talking about shifting his development activities off-shore (i.e. India) to avoid IP risk.

Larry Lessig is indeed pretty hot on all this...