As long-suffering readers will know, I've been warning about the growing problem of patent thickets in the field of software for some time now. Until relatively recently, I and a few others have been voices crying in the wilderness: the general consensus has been that patents are good, and more patents are better. But in the last few weeks, the first hopeful signs have appeared that at least some people are beginning to realise that software patents not only do not promote innovation, they actually throttle it.
For example, Nathan Myhrvold, the founder of the super-troll company, Intellectual Ventures, recently penned an opinion piece in the wake of the sale of the Nortel patent portfolio, with the following conclusion:
Once upon a time in the clubby atmosphere of corporate America, hostile takeovers were rare; gentlemen just didn't do such things. Then, in the 1960s, the hostile takeovers came to be accepted as a legitimate business tool. Similarly, the strategic use of patents now appears to be accepted in the technology industry. If that's true, then Nortel is just the beginning.
What we have here, in short, is this: Myhrvold is happy to see patent portfolios like Nortel's being bid up because it increases his own company's value with its thousands of patents. This is an arms-dealer applauding the outbreak of hostilities, meanwhile pointing to people making war-like faces on the sidelines. (Whoa, watch out for those guys!) This is far, far from a disinterested observer of a fundamentally broken U.S. software patent system. Let's end the deference.
Shortly afterwards, the mainstream US broadcaster NPR's "Planet Money" programme did an in-depth report about Intellectual Ventures and its claims to promote "innovation" - and found them seriously wanting. It concludes with the following comment on the Nortel patent portfolio auction:
The portfolio eventually sold to Apple and a consortium of other tech companies including Microsoft and Ericsson. The price tag: $4.5 billion dollars. Five times the opening bid. More than double what most people involved were expecting. The largest patent auction in history.
That's $4.5 billion on patents that these companies almost certainly don't want for their technical secrets. That $4.5 billion won't build anything new, won't bring new products to the shelves, won't open up new factories that can hire people who need jobs. That's $4.5 billion dollars that adds to the price of every product these companies sell you. That's $4.5 billion dollars buying arms for an ongoing patent war.
Finally, a very interesting interview with Google's Senior Vice President & General Counsel appeared yesterday, in which he said:
"Patents are government-granted monopolies," Walker then says quite matter-of-factly. "We have them to reward innovation, but that's not happening here," he says.
So, as you might expect, I'm pleased that people are finally waking up to the seriousness of the situation. More and more are beginning to talk about abolishing software patents altogether – something I have been advocating for years now. But I don't think that goes far enough: we need to abolish all patents, for everything.
Just why that is both necessary and possible formed one of the main strands of my talk at the Open Knowledge Conference in Berlin recently. If you wish, you can watch a video of it here:
The slides that I used are also available online:
As you can see from both of these, I take a historical approach. Patents date back to the 15th century, when they were issued by the English monarch as "letters patent" - "patent" because they were open for all to see, rather than sealed. Despite their royal provenance, they were essentially instruments of piracy: they were used to "steal" knowledge from other lands by offering a 20-year monopoly in England to the person bringing that knowledge into the country.
This approach made sense, because five hundred years ago innovation was scarce. There wasn't that much practical knowledge, aka technology, and very few possessed it. According to the quite reasonable mercantilist viewpoint prevalent at the time, the only way to get that knowledge was to take it from somewhere else, using monopoly bribes as an incentive.
The system worked pretty well because relatively few patents were given out. The monarchs were interested in importing certain key technologies, and giving a 20-year monopoly for each of those was a small price to pay.
Now fast forward to the present. In 2009, 482,871 patent applications were filed with the USPTO, and another 150,000 Europe. Japan and China probably add similar numbers. So all-in-all, there were getting on for three quarters of a million patent applications around the world. Now, applications are not the same as patents, but this does at least give an idea of the scale.
Inventions today are not scarce; on the contrary, there is a surfeit of them. That might seem good news – after all, surely you can't have too much innovation? Maybe not, but you can certainly have too many patents on inventions, because patents by definition are about excluding people from using knowledge – and you can certainly have too much of that.
The problem is most evident in the world of software patents. Complex software inevitably contains hundreds, maybe thousands of smaller sub-units. Many of these are now covered by software patents (at least in jurisdictions foolish enough to allow them.) This means that potentially many companies have the power to block those products, since to work they need all the patented elements to be present, and it doesn't matter if you came up with them completely on your own - "independent invention" is not a defence against patent infringement. This leads to the "patent thicket" problem, where there are so many patent holders claiming their patents are relevant that every new product attracts multiple lawsuits (basically what is happening in the smartphone sector today.)
Matters are exacerbated by granting lots of obvious and/or trivial patents, which means that even the most original product infringes on something, but that's not the real issue. Even if every patent office around the world were perfect, the patent system would still impose greater and greater burdens on manufacturers: as more and more patents were be granted, more and more products would infringe on them, in more and more ways.
Basically, the patent system does not scale. What worked in a medieval world of scarcity does not work in the modern world of abundance. Then, inventions were simple, with perhaps one key idea. Today, inventions are complex, building on many ideas that came before, and involving many subsidiary but vital elements. And things will only get worse, not better, with time, as developing countries start to produce more inventors who gain more patents that make patent thickets ever denser.
This growing abundance is not just the problem, it is also the solution. Patents were devised to encourage the release of scarce knowledge into the public domain when inventors were few, and it was easy to keep secrets (trade guilds were set up to do precisely that.) Today, knowledge is abundant and it is practically impossible to keep secrets (think Wikileaks...)
This means that we can do away with the distorting monopolies of patents: no incentive is now needed to invent, because there are enough people to do it anyway. Why? Because invention is not an end in itself, but is a means to deriving profits from the manufacture and sale of that invention. People will continue to innovate in the absence of patents because they hope to gain money from their inventions.
The standard argument against abolishing patents is that people won't invest in product research because someone might "steal" their invention later. It's certainly true that others will be able to use those inventions, but only once they are released. This gives a crucial first-mover advantage to the company that invented it – precisely what is needed to establish a commanding position.
Even Nathan Myhrvold recognises this is true, at least for the world of high-tech:
Most big tech companies inhabit winner-take-most markets, in which any company that gets out in front can develop an enormous lead. This is how Microsoft came to dominate in software, Intel Corp. in processors, Google Inc. (GOOG) in web search, Oracle Corp. in databases, Amazon.com Inc. in web retail, and so on.
As a result, the tech world has seen a series of mad scrambles by companies wanting to be king of the hill. In the late 1980s, the battle was for dominance of spreadsheet and word-processing software. In the late 1990s, it was about e- commerce on the emerging Internet. The latest whatever-it-takes struggle has been over social networks, with enough drama to script a Hollywood movie.
In each case, the recipe for success was to bring to market, at a furious pace, products that incorporate new features. Along the way, inconvenient intellectual property rights were ignored.
Note that he even admits that "inconvenient intellectual property rights were ignored" - they didn't matter; what mattered was rapid innovation and getting to market first. And so it is in a patent-free world. Those who invent something get to sell their invention first and build a commanding market share; copycat companies are just that: copying rather than inventing.
That is more important than many think. If you have the choice between buying from the company that pioneered a technology and one that unthinkingly copied it, which would you choose? For low-tech items you might choose the cheaper copies; but for things like medical equipment or aircraft parts I think most people would rather go with the experts. Reputation, then, becomes the crucial factor in the patent-free world, something we are already seeing in social networks and their spillover to the business world.
To conclude, I'd like to explore two particular markets, since they often come up in discussions around patent abolition.
The first is that off pharmaceuticals. This is often cited as a sector where patents are absolutely indispensable, given the huge up-front costs required to bring a new drug to market. There are couple of things to note here. First, claims that new drugs typically cost $1 billion to develop are suspect; even though the figure is routinely rolled out when drug patents come under fire, it seems that the real figure is less than a tenth of that sum – which makes the investment decision rather different.
But even assuming a much higher figure is required, there is a well-established alternative: innovation inducement prizes, something I've written about before. Here the idea is that governments offer a substantial prize – potentially billions of euros – to any company that can come up with a new drug that treats a specified condition with a given efficacity.
Both the EU and US have talked about instituting such a scheme, so it's not entirely wishful thinking. But the main point is that we don't need to have drug monopolies in order to keep drugs being developed. Moreover, the drugs that are being created are typically "me-too" drugs for treating the diseases of rich, old Western men, and rarely serve the billions elsewhere suffering from diseases that aren't sufficiently "profitable" for pharma companies to bother about. So the current system is pretty dysfunctional here, too.
Finally, I'd like to answer a question posed by someone commenting on a previous software patent article. In the absence of such patents, how can a small company risk investing in research that might simply be taken by a bigger company once it is released as a product?
It's worth asking that question about today's system: how do patents stop that happening? The answer is, they don't really. Any big company can simply grind a smaller one into the ground by dragging out crippling expensively court battles. Indeed, I'd say that one of the many flaws in the current patent system is that it inherently favours big companies with lots of very expensive lawyers.
It's striking that truly innovative startups just don't bother about software patents, at least initially – they are too busy innovating and making their product successful. It's only later, when they are market leaders with legal departments, and innovation is slowing down, that they start to apply for and use patents – against the next generation of innovative startups (Microsoft is the quintessential example of this pattern.)
The situation without patents is actually better for smaller companies, because they can't be threatened by larger companies with possibly spurious lawsuits, and can compete on a level playing field. They can do this thanks to first-mover advantage and reputation. Even if that work can be taken by larger companies without payment, the company that invented it still has the opportunity to sell products based on it beforehand (or to sell the technology to third parties.)
Moreover, by creating work that others like so much they want to take and use it, the small company is building a reputation that it can then exploit in the future – for example, as a contractor to those same companies, or their rivals. Now, maybe people would rather not do that, but businesses by their very nature need to respond to changing circumstances, and so it may be that many smaller companies will tend to fall into this line of work.
After all, it must be emphasised that the society does not draw up its business laws order to guarantee that everyone can make money in the way that they would like. All that society requires is that innovation overall can thrive, not that particular ways are protected (a point that the copyright industries seem unable to grasp.)
In the past, when inventions and inventors were scarce, that was done with patents; now, I suggest, in a world where both are becoming more abundant by the day, society will enjoy more innovation in their absence, and without the high economic, social and ethical cost the enforcement of government-backed monopolies imposes.