I am quite sympathetic to the deadweight loss arguments in this paper, but placing the blame on the trolls is a bit misguided. They’re responding to incentives, even if we don’t like them. I wish the paper were more oriented around the law and the practices of the patent office.
Also, again while sympathetic, this paper was clearly researched after the authors had taken a position on the issue (notice the book mention). They started with a position, and went looking for data ex post facto.
They make no distinction between more and less legitimate patents. If a company is infringing on what many of us might consider a legitimate patent, then yes they will suffer financially. The paper elides over such a distinction.
Using stock price as a proxy for future foregone profits is clever, but it’s a heck of an assumption. I don’t think it rises to the level of empiricism. It’s interesting for sure, but best understood as a statistical artifact.
>They make no distinction between more and less legitimate patents.
It's a valid position to question the legitimacy of the patent system as a whole and to consider all patents illegitimate. There are multiple levels on which the entire system is ridiculous, both ethically as well as economically.
I won't take a position on the paper since I haven't read it (yet).
Placing blame on patent trolls is perfectly reasonable. Blaming the system is also reasonable. The mistake is thinking that in blaming one, you can't blame the other.
Just because an asshole is acting legally doesn't mean he isn't an asshole.
The existence of patent trolls shows how far the system is out of control.
Patents are designed to provide an incentive for companies to invest in heavy research and to publish the results, while being guaranteed a limited monopoly on the invention in order to monetize it. (Or at least that's what they should be for).
That is in the interest of society as a whole.
What is not in the interest of society as a whole are (1) patents on inventions that did not incur any cost (2) passing on these monopolies to entities that do not plan to produce anything.
Patents are designed to provide an incentive for companies to invest in heavy research and to publish the results, while being guaranteed a limited monopoly on the invention in order to monetize it. (Or at least that's what they should be for). That is in the interest of society as a whole.
Sorry to nitpick, but the patent system doesn't directly incentivize heavy investment in research initiatives. It incentivizes publicly disclosing how to practice the invention in exchange for a limited monopoly on practicing that invention. The government and other interested organizations incentivize research by offering grants, prizes, or outright subsidizing the research.
What is not in the interest of society as a whole are (1) patents on inventions that did not incur any cost (2) passing on these monopolies to entities that do not plan to produce anything.
I disagree with point (1) if by "cost" you're referring to financial expenditures. Psychic cost and other non-tangible costs are still very real. More than that, however, the patent system's purpose isn't to make people money. Its only purpose is "[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." US Const. Art. 1, sec. 8, cl. 8. As implemented in Title 35, the Patent Act accomplishes this by requiring disclosure of the patentable subject matter in exchange to this exclusive right to practice the invention for a limited time.
I think my point still stands, though. Maybe this is not the intent of the law, which I think is exactly the problem.
There is no benefit to society and "the Progress of Science and useful Arts" if somebody has just an idea (that anybody else could have too - maybe about a cool device, a cool algorithm, a cool user interface), publishes this idea and gets "the exclusive Right to their respective Writings and Discoveries."
Science and society only benefit if this an idea worth protecting. The my crucial point is: How do you measure this "worthiness"?
If you measure it in the potential money you can get from idea, you're in the current (bad) situation. The competitive forces of a free market will always provide a better result without artificial monopolies.
If you measure it in the cost required to reach this discovery, then we have a yardstick on which to measure whether something is patent worthy or not.
Just my $0.02. Not a layer, but somebody who has been in the software industry in various capacities for long time.
There is no benefit to society and "the Progress of Science and useful Arts" if somebody has just an idea (that anybody else could have too - maybe about a cool device, a cool algorithm, a cool user interface), publishes this idea and gets "the exclusive Right to their respective Writings and Discoveries."
That's just it, though: they don't get legal protection for publishing the idea. They get legal protection for patenting it, which requires that the idea be more than an idea--it has to be an invention. The USPTO is charged with the task of ensuring that the invention is novel, non-obvious, useful, and adequately reduced to practice. Basically, they're giving you an exclusive right for giving someone "instructions" on how to practice your invention. Whether the USPTO does a good job at this is obviously the issue, and my answer is that they don't, which comports with your overall thesis.
My favorite professor, Michael Meurer was my patent law professor. Great guy who came as close to being balanced and realistic on the current state of the patent world.
How can we lose money we don't have to begin with?
Revised title: "The Opportunity Cost of Patent Trolling: Estimated at $80B/yr"
What is a patent?
Ask that question and you get a wide variety of answers.
Does it require the grantee to do anything? No. Except pay fees.
Does it give the grantee permission to manufacture, market and sell anything? No.
Does it guarantee the grantee protection from competition? No.
So what is a patent?
It is a right to sue. (And thereby a right to threaten to sue.)
And currently, I believe the patent office is granting around 200,000 of these annually. The number keeps increasing.
Are rates of innovation in line with this the number of grants? What percentage of patents are actually practiced?
Are the numbers of new technologies and products reaching the marketplace increasing in line with the increases in the number of grants? Are there more inventions or more inventors, or do inventors just need more and more protection year after year?
How about the rates of patent litigation and threats of patent litigation (patent trolling)? Ah ha.
We can talk about innovation and incentives, motivation and effects, and get lost in academic arguments about inventors and economics, but it does not change what a patent is:
Pure and simple, it is a right to sue.
And selling this right to sue (or should we say licensing it), now by the 100's of 1000's each year, has itself become a major source of revenue for the government. It's a business.
Grant the right to sue indiscriminantly one hundred thousand times or more each year and you just might start to see some grantees exercising their right to sue (or threaten suit) ... without any intention of ever manufacturing, marketing and selling anything.
Never underestimate the path of least resistance.
Manufacturing, marketing and selling versus threatening patent litigation and asking for compensation. Which of those two do you think is an easier route to profits?
The point that many miss is that only one of the two is actually using the patent.
That's because a patent is a right to sue.
It grants no other permissions. It carries no obligations other than the need to pay fees.
As such, trolls operate squarely within the system. They are exploiting patents for their true worth. Patents are expensive to prosecute and maintain. Go figure.
As others point out, the system is the bigger problem. You do not need to be an expert in intellectual property or economics to figure out what incentive is created by granting the right to sue, a hundred thousand times each year.
Also, again while sympathetic, this paper was clearly researched after the authors had taken a position on the issue (notice the book mention). They started with a position, and went looking for data ex post facto.
They make no distinction between more and less legitimate patents. If a company is infringing on what many of us might consider a legitimate patent, then yes they will suffer financially. The paper elides over such a distinction.
Using stock price as a proxy for future foregone profits is clever, but it’s a heck of an assumption. I don’t think it rises to the level of empiricism. It’s interesting for sure, but best understood as a statistical artifact.