Technological Innovation and Intellectual Property

Summary:

Patents as property I

The idea that patents can be analyzed as a property system both regarding its strengths and its weaknesses seems to be gaining currency in influential circles. This post reports on a recent editorial in the Wall Street Journal.

What s wrong with software patents?

This post, continuing summaries from Patent Failure, reviews the evidence on whether software patents have a particular problem, and, if so, what it is and how it might be fixed.

Patent sharks

Summary of recent articles on patent sharks, both old and new.

IP and startups

Theoretical model explores a novel effect of patents for startup firms.

According to Michael Heller the cures are lost in patent gridlock. His article in Forbes has the not very pretty details.

An interesting story in the LA Times about the movie "Dark Knight." They went to great lengths to make sure that bootleg DVDs wouldn't hit the streets for the first two days after the movie was released:

Warner created a "chain of custody" to track who had access to the film at any moment. It varied the shipping and delivery methods, staggering the delivery of film reels, so the entire movie wouldn't arrive at multiplexes in one shipment, in order to reduce risk of an entire copy being lost or stolen. It conducted spot checks of hundreds of theaters domestically and abroad, to ensure that illegal camcording wasn't taking place. It even handed out night-vision goggles to exhibitors in Australia, where the film opened two days before its U.S. launch, to scan the audience for the telltale infrared signal of a camcorder.

Warner Bros. executives said the extra vigilance paid off, helping to prevent camcorded copies of the reported $180-million film from reaching Internet file-sharing sites for about 38 hours. Although that doesn't sound like much progress, it was enough time to keep bootleg DVDs off the streets as the film racked up a record-breaking $158.4 million on opening weekend. The movie has now taken in more than $300 million.

The success of an anti-piracy campaign is measured in the number of hours it buys before the digital dam breaks.

Notice: intellectual property didn't play any role in this, and they focused on the doable - keeping the monopoly for a short period of time. I am completely in favor of this: I think a truly short-term monopoly does little social harm, and provides important incentives for creation. But as this makes clear: the police power of the state isn't needed here. And it's absence makes sure that the monopoly is truely short lived. I've long thought that this is the proper use of DRM: don't try to lock down stuff that is years old for decades - clearly a losing proposition - but use it to keep the secret on initial release. If that is accompanied by the DRM-free version to be released after a short pre-announced period of time, the incentives for crackers drops, and it becomes posible to actually keep the secret.

As you may know I am much more favorably inclined towards trademarks than other forms of intellectual property. (Michele is less favorably inclined.) It seems to me a good thing that it is possible to tell who you are doing business with, and no downside monopoly. That may be the purpose of trademark law...but there is another part of creeping IP: the apparent right under trademark law to protect the image of your product. Daniel Monchuk directs us to an article in the WSJ about what seems to me to be trademark abuse. The article is about costume companies that are being sued by trademark holders for providing costumes based on trademarked characters. For the life of me I don't see what this has to do with identity: there is no claim that these costumes are authorized by the trademark holder, nor can a costume based on a comic book be confused for a comic book. Perhaps Justin or someone else who knows more about the law than I do can comment on whether this is a proper use of trademark law as it exists. Certainly if the law allows it, then there is a big problem with trademark law.

via Aleh Tsyvinski

Sergei Guriev and I (together) and Konstantin Sonin (also from the New Economic School) write a bi-weekly column in Russian business daily Vedomosti (jointly published by the Wall Street Journal and FT).

This week Konstantin wrote a very nice column about your book link here

He also has one of the most popular Russian blogs and there is more stuff here link here

Links for the book are Amazon Cambridge University Press and the free online version

This is the translation of Konstantin's article that Babelfish and I came up with:

There are economic questions, on which, it would seem, agreement between scientists is long established. Until recently these firm truths included the need for patents and copyrights. And here matters rested until the book by the economists of Washington University in Saint Louis Michele Boldrin and David Levine in which they reexamine patents and copyrights. They assert that intellectual property is not necessary: that the inventor or the author can profit even in its absence. Moreover the gain to society as a whole from eliminating it - including the users, who will pay less, and other producers - will be significant.

The standard argument of economists in favor of copyrights and patent rights is as follows. In order to provide incentives for invention, it is necessary to provide some reward afterwards. Patents give rise to a short-term monopoly. The problem is that monopoly is always inefficient. In order to force those, who value goods especially highly, to pay a little more, the monopolist restricts supply relative to the amount that would be sold if the market was competitive. Accordingly, the standard argument of economists is that the inefficiency from the temporary monopoly of patent protection is necessary to pay inventors and give them proper incentives.

Boldrin and Levine, relying on the theory they have developed, show based on numerous examples that the costs of intellectual monopoly are greater than necessary for the stimulus of development. Time after time it happens that the great inventors, whose names are known to us from school, after making their first discovery, switch their energy and not less remarkable resourcefulness to fighting for the right to exclusively obtain profit. The activity of James Watt, father of the first steam machine, for a long time slowed the development of more advanced technology and did not bring any special benefit. Watt earned more when his patents expired and he was forced to implement new developments and compete with his followers.

An even more striking example is drawn from recent history - the innovations that have changed the face of the world in the recent decades: especially the development of computer software. (The book also gives a great deal of attention to the pharmaceutical industry.) Until 1981 it was not possible to patent software (in practice is was not really possible until 1994). The success of software, developed freely without patent, shows that even without monopoly the developers have sufficient incentive to actively produce new innovations. Now almost all the large firms cross-license patents with each other and hurry to patent the smallest technological changes in order to be protected from potential rivals.

What would happen, ask Boldrin and Levine, if the latest book of J. K. Rowling was not copyrighted? Without Rowling's copyright it would not earn worldwide six hundred million dollars, but possibly only six million dollars. This would be due to sales during the first few days, during which time the other publishing houses would not yet have time to produce copies. But perhaps for a French teacher this would be more than enough incentive? Whether selling the "first copy" of an idea creates sufficient stimuli for the innovation, is one of the one of the most difficult issues in the book. But to each traditional argument in favor of patents and copyright the authors provide meaningful answers. They do not always disagree: for example, in discussion of the role of commercial secrets.

In the book of Boldrin and Levine very little is said of Russia, beyond mentioning Alexander Popov's priority in the invention of radio. This is discussed in the chapter about how frequently the rewards from the efforts of a large number of people, who work independently of each other, wind up, because of the patent right, in the hands of one person. In our country the question of intellectual monopoly is discussed in the following context. The obvious benefit from the absence of copyright is greater accessibility. If in the 1990's software had been protected from the piracy, the advance of computer literacy would be much slower. In recent years our government has repeatedly moved in the direction of a stricter observance of patent rights and copyright. In other words, in the opinion the authors of the book Against Intellectual Monopoly, in the incorrect direction.

Perhaps nevertheless Boldrin and Levine - both of them among the most highly-paid academic economists in the world - are not right? The book, although based on long-term investigations, and no matter how convincing, has not changed the prevailing view in the economics profession. However, at a minimum there is something to their line of reasoning: I spent 20 dollars and purchased their book, although it - in complete agreement with the persuasions of the authors - can be downloaded free of charge load from their web site.

Crosbie Fitch has been posting interesting comments here for a while, but talk about not blowing your own horn. He hasn't mentioned that he also posts regularly at Digital Productions on IP issues. Check it out.

Michele's and my book

is now out...sort of. You can order it on Amazon except it appears to be temporarily out of stock. I guess that is a good thing. They have links to a few copies from other sellers. Or the publisher Cambridge University Press although they say it isn't available to August. But we know it exists, we've seen, sold and even signed a few copies. The free online version is available here

Here is the official blurb:

"Intellectual property" - patents and copyrights - have become controversial. We witness teenagers being sued for "pirating" music - and we observe AIDS patients in Africa dying due to lack of ability to pay for drugs that are high priced to satisfy patent holders. Are patents and copyrights essential to thriving creation and innovation - do we need them so that we all may enjoy fine music and good health? Across time and space the resounding answer is: No. So-called intellectual property is in fact an "intellectual monopoly" that hinders rather than helps the competitive free market regime that has delivered wealth and innovation to our doorsteps. This book has broad coverage of both copyrights and patents and is designed for a general audience, focusing on simple examples. The authors conclude that the only sensible policy to follow is to eliminate the patents and copyright systems as they currently exist.

From Bob Hunt:

Just wanted to make you aware I have finished a new draft of my paper on business method patenting and US financial services.

This is a very substantially revised version of my paper from last year. I have added a section on the problems official R&D measurements and then I construct my own R&D measurements based on the occupational composition of financial industries. I have documented about two dozen business method patent suits that involve financial institutions, payment networks, and important vendors to the industry. And I wrote up an economist's perspective on about a dozen cases decided in the last two years that are relevant to business method patents.

The paper is here. To whet your appetite, an excerpt from the abstract:

BUSINESS METHOD PATENTS AND U.S. FINANCIAL SERVICES

A decade after the State Street decision, more than 1,000 business method patents are granted each year. Yet only one in ten are obtained by a financial institution. Most business method patents are also software patents.

Have these patents increased innovation in financial services? To address this question we construct new indicators of R&D intensity based on the occupational composition of financial industries. The financial sector appears more research intensive than official statistics would suggest, but less than the private economy taken as a whole. There is considerable variation across industries but little apparent trend. There does not appear to be an obvious effect from business method patents on sector's research intensity.

Looking ahead, three factors suggest the patent system may affect financial services as it has electronics: (1) the sector's heavy reliance on information technology; (2) the importance of standard setting; and (3) the strong network effects exhibited in many areas of finance. Even today litigation is not uncommon; we sketch a number of significant examples affecting financial exchanges and consumer payments.

For your amusement, a 45 page legal treatise by Andrew Beckerman Rodau entitled "The Supreme Court Engages in Judicial Activism in Interpreting the Patent Law in eBay ,Inc. v. MercExchange, L.L.C." The treatise opens with a long, cursory, and misinformed discussion about the economics of patents - misinformed not in the sense that Michele and I disagree with the economics, but that all economists would disagree with the economics. But the amusing part is the criticism of the Supreme Court for judicial activism. Their activism? Not respecting a long tradition of allowing permanent injunctive relief. The humor: the patents in question are business practice patents - for conducting auctions, no less - the real activism was of course the activism of the United States Court of Appeals for the Federal Circuit which created business practice patents whole cloth against an equally long tradition of not allowing them. Not surprisingly I didn't see any mention of this by Rodau in his article.

If you are looking for more IP humor, you might try this. Here is a bit from the abstract:

Origin stories serve both ontological and epistemological functions. They in- fuse everyday life and relations with significance by explaining why things are as they are and by providing guidance for how things should evolve based on what we already understand about our world. Origin stories also literally give a culture life by designating a beginning and a history. Finally, most origin sto- ries are political, legitimating or justifying certain relations of power in society. This Article is a comparative analysis of the "origin stories" that structure several branches of United States intellectual property protection: copyright, trademark and patent law.

Sadly this paper by Silbey is probably closer to the mark than Rodau's.