Speaking of Carter nostalgia, can you guess who championed the expansion of patent eligibility that lead to the mess we’ve got today? Yep:
Today’s patent mess can be traced to a miscalculation by Jimmy Carter, who thought granting more patents would help overcome economic stagnation. In 1979, his Domestic Policy Review on Industrial Innovation proposed a new Federal Circuit Court of Appeals, which Congress created in 1982. Its first judge explained: “The court was formed for one need, to recover the value of the patent system as an incentive to industry.”
The country got more patents—at what has turned out to be a huge cost. The number of patents has quadrupled, to more than 275,000 a year. But the Federal Circuit approved patents for software, which now account for most of the patents granted in the U.S.—and for most of the litigation. Patent trolls buy up vague software patents and demand legal settlements from technology companies. Instead of encouraging innovation, patent law has become a burden on entrepreneurs, especially startups without teams of patent lawyers.
Until the court changed the rules, there hadn’t been patents for algorithms and software. Ideas alone aren’t supposed to be patentable. In a case last year involving medical tests, the U.S. Supreme Court observed that neither Archimedes nor Einstein could have patented their theories.
My gripe about patents is that I don’t believe that the Patent Office has the ability any longer to distinguish among the obvious, prior art, and genuinely patentable inventions. That results in routine granting of patents for the equivalent of the wheelbarrow at which point the matter becomes a question of who can afford the best lawyers.
Have I mentioned that big companies, responsible for filing most of the patents, create a lot fewer jobs than small start-ups do?
Update
For an explanation of why copyright law is equally nuts see here. The links are particularly helpful.
You’ve hit on one of my gripes; the second is that, ideally, patents are about ‘standing on the shoulders of giants,’ by allowing companies to license existing innovations at a fair cost to avoid repeating work.
In theory, this would allow companies to work only on core competencies, because they could find relevant patents and license things that were secondary to their intent.
With this many patents AND with the unwillingness of companies to license them with competitors, it becomes hard to find relevant innovations, and even harder to get permission to use them.
“Have I mentioned that big companies, responsible for filing most of the patents, create a lot fewer jobs than small start-ups do?”
Most stats I have seen put start-ups at about 70% and small companies (like the ones we buy) at about 30%. Big companies, net, are about zero.
I must say, though, in 20 years of doing what I do we have only bought a handful or two that either had or created patentable products or processes. Growing employment we can do, serious groundbreaking R&D? Not so much. Just too small. That’s why I call ourselves business mechanics, not groundbreakers.
My brother works for a certain prominent drug company in Indiana, and they must file a patent a day……
Perhaps a little explanation is in order. Patents are an 18th century technology for encouraging solitary craftsmen to create new inventions and spread their use. The creators of the idea of patents couldn’t imagine mass distribution, the Internet, or even organized industrial labs.
What patents do now is the opposite of what they were intended to do. They’re used by global companies to preserve market share and prevent the spread of new technologies.
We have a very different understanding of creativity than we did 300 years ago in the age of Mozart. New inventions don’t spring fully formed from the foreheads of geniuses like Athena from the brow of Zeus. They’re built on previous inventions. When you restrict the spread of new inventions as patents do it decreases the rate of technological advancement rather than increasing it.
Distribution used to be difficult and expensive. Now it’s easy and cheap. IMO patents in their present form have outlived their usefulness.
Patents as they are today aren’t terribly useful for small companies. The patents of little guys are routinely violated by the big boys who can afford the hired guns to ward off the interlopers. The intermittent windshield wiper isn’t a story of David triumphing over Goliath but a cautionary tale. For every one of them there are dozens or hundreds where the little guy got squashed.
If you want large companies you inherently want less employment. If you want more small companies and start-ups, you’ve got to give them room to grow. Intellectual property law is one of the things that prevents that. I started getting intellectual property clauses in the contracts that my big clients wanted me to sign about thirty years ago. There’s no way a little guy can actually live up to the terms of such clauses. The basic choices are between lying and not getting the contract.
Dave
I’m no expert on patent law or dynamics, but what would you say to Mr. Lilly about spending ginormous sums for R&D to bring a drug to market only to have it reverse engineered and unable to reap the economic rewards?
My brother actually works on the security aspects of protecting the molecules they are developing. Its truly a swing for the fences business with a once in awhile grand slam paying for all the strike outs.
I’d have more sympathy with Mr. Lilly if I were more confident that he was spending “ginormous sums” on R&D rather than on marketing and compliance labelled as R&D. I’ve read the pharmaceutical firms’ financial statements and I’m not so sure.
I’d also like to know how he’s going to protect his patents in countries that don’t have robust systems of civil law like, say, most of the world outside of North America, Australia, New Zealand, and the EU. Despite international conventions the effect of those patents isn’t to prevent those products being reverse engineered and sold at cut rates but to prevent Americans and Europeans from doing it.
Said another way globalization has rendered intellectual property law moot other than as a way of putting people who live in the developed world at a competitive disadvantage.
Do we have any assurance that Mr. Lilly, after spending ginormous amounts on R&D, will actually bring the drug to market? I don’t believe Mr. Lilly has to use his patent to sue other companies from bringing the drug to market, that they may have discovered independently.
Dave, PD
A few observations.
I don’t view marketing and R&D as either or. A corporation’s management on behalf of “Mr. Lilly” would be violating fiduciary duties to not construct marketing programs to maximize efficacious or market desired products. It seems to me that the core question is who will fund the research if the profit is stripped away. (I do not think I am at liberty to give an exact number, but let’s just say Lilly has around a hundred molecules under development right now. As I understand it, only a number less than 5 will eventually succeed. That takes a lot of money to amortize the losers over the few winners.)
Now, it seems to me whether or not to heavily market a “boner maker” drug (sorry) is a value judgment. But diabetes? A congestive heart failure drug? Infectious disease? etc……..Those could be serious life changers for some. I would think we would all like to avoid that.
As for foreign countries raiding IP, as I have commented here a number of times, its one of the reasons manufacturing is coming back from China. US manufacturers are balancing IP returns vs labor.
PD – I’m not sure I understand your first sentence. Are you suggesting they would withhold a winner? That would be irrational. I defer to you on the second sentence. What tort remedy would they have against another company in the absence of a patent, and isn’t it the very idea of a patent to discern who discovered what and when?
Red, the most likely scenario for Mr. Lilly is that he is funding a lot of general research without necessarily directing what its applications might be. When the research bears fruit and an application is determined, it’s patented. However, if Mr. Lilly already has a competing drug being sold for this application, Mr. Lilly might find it more profitable to hold off producing a competitor drug that will simply eat into its own profits. Mr. Lilly does not have to worry about the competition, because the patent prevents them from producing it. Mr. Lilly sues anybody that manufactures a patented drug without his permission for patent infringement.
Some people advocate a “use it or lose it” requirement that if the patent does not result in a product coming to market in 3-5 years, the patent expires into public use.
I suspect there are still a few individual inventors out there, so I am nto sure we are ready to do away with patents. However, we could certainly do away with those instances where they get an extension, sometimes multiple extensions, just by changing the dosage of a drug, then giving it a new name.
Drew is partially correct about drug companies. They do sink a lot of money into research, but they get most of their important basic research and a lot of their clinical research from public sources (universities). They do spend a lot on marketing, and they do it in such a way that it is hard to separate it from their research spending, but it is still a lot of money. They can still make money even if China reverse engineers products. Not so much if competitor companies in the US can do the same.
Steve
I’m not a drug researcher, so I accept steve’s comment at face value. And if they get such IP from public sources they should pay.
PD – that’s imputing bad motive that I think is a bridge too far.
I do have some experience in the physical sciences. First, my thesis, together with cohorts. The professor, if “sulfur fixation during coal gasification” worked out would have received royalties.
Second, I worked with the research department in the steel company to take what are known as “HSLA” steels – a fancy way of simply saying making steel really strong through a precipitation hardening mechanism (you all have it in your car frames) to take it from a 1ft x 1ft x 1ft lab furnace to an 80 inch wide hot strip mill with a quarter mile of steel travelling like a bat out of hell. Commercialization. The research and production effort was super targeted. Weight reduction. Fully planned.
The problem I have is that patents aren’t for the truly novel anymore. If a drug company invents a new wonder drug then they should reap the benefits. They should not, however, be able to game the system and alter the formulation slightly to extend the patent. Incremental improvements to the status quo should not be patent-able. Genes should not be patent-able either.
Dave’s mentioned them before, but patents for software and business processes, among other things, are problematic as well. Overall, I think it’s just gotten out of hand and the criteria for a patent should be must more restrictive.
Red, I am not imputing motive, other than a corporation’s goal of maximizing profit or value within the presence of government recognition of a short-term monopoly. If the monopoly was necessary for the investments to occur, then the benefits of limiting competition probably outweigh the losses.
PD
See Dave’s comment a couple posts ago about the Saudis and the housing crisis.
Michael Medved has “conspiracy day” on his show every Tuesday.