As noted here, "Ayn Rand's newsletters used to end with a "Horror File" of monstrous but true quotations."

Along those lines, it's time to collect some choice trademark horror stories in one place. The main post will be here, on the Mises Blog, but I'll cross-post the initial post here too. But look there for updates (or to add suggestions in the comments). (Update: I have modified this post to also include outrageous examples from patent, copyright, and trade secret law. See below.)

Trademark

As noted in Trademark versus Copyright and Patent, or: Is All IP Evil?, it's not only patent and copyright that are unlibertarian and unjust. Modern trademark law is as well. I deal with tradmark rights on pp. 58-59 of Against Intellectual Property, and also in some detail in Reply to Van Dun: Non-Aggression and Title Transfer (esp. pp. 59-63). In my view, extensions of trademark law--rights against "trademark dilution" and cybersquatting, etc.--are obviously invalid. Further, federal trademark law is problematic since it is not authorized in the Constitution.

But even if federal trademark law were abolished, as well as modern extensions such as rights against trademark dilution, even common law trademark is problematic, for three primary reasons. First, it is enforced by the state, which gets everything wrong. Second (see First), the test of "consumer confusion" is usually applied ridiculously, treating consumers like indiscriminating idiots. Third, and worst of all, the right at issue is the right of the defrauded consumer, not the competitor. Trademark law ought to be reformed by abolishing the right of trademark "owners" to sue "infringers" (except perhaps as proxy for customers, when consent can be presumed or proved--as I discuss in this interview: Free Talk Live Interview on Reducing IP Costs (Jan. 20, 2010)), and treating this as a case of the customer's right to sue a vendor who defrauds him as to the nature of the good purchased. Some might argue that this is only a minor change, but it is not: such a change would make it clear that "knockoffs" are usually not a violation of anyone's rights: the buyer of a $10 "Rolex" is almost never defrauded--he knows what he's getting. Yet by giving an enforceable trademark right to the user of a mark, he can sue knockoff companies even though their customers are not defrauded and in fact are perfectly happy to buy the knockoff products.

The other fallacy is the view at work here that there is no such thing as reputation, or even identity, absent trademark law. But this is incorrect. Of course people and firms can have reputations even if trademark law is nonexistent. All that is required is that people be able to identify other people and firms, and communicate. Pro-trademark arguments often implicitly assume that this is not possible, absent state-enforced trademark law, which is ridiculous.

In any event, on to a collection of trademark outrages for the horror files (some of these are also listed in Reducing the Cost of IP Law):

• Court Says U Of Southern California Only One Who Can Use USC; Sorry U Of South Carolina
• Who Dat? America's National Football League causes outrage over catchphrase ban
• What's Next--Trademarking Language? Don't be *Ridiculous*!
• South Butt David versus North Face Goliath
• Lou Carlozo, Teen's charity name draws the McIre of McDonald's, Wallet Pop (Jan. 17, 2010) (McDonadl's claims Lauren McClusky's use of "McFest" for the name of a series of charity concerts she puts on infringes its "McFamily" brand)
• Budweiser trademark dispute (see also Chip Wood, A Bully-Boy Beer Brewer, Straight Talk (Oct. 16, 2007))
• 9th Circuit Appeals Court Says Its Ok To Criticize Trademarks After All, Against Monopoly (Sept. 26, 2007)
• Kinsella, Trademarks and Free Speech, Mises Blog (Aug. 8, 2007)
• idem, Beemer must be next… (BMW, Trademarks, and the letter "M"), Mises Blog (Mar. 20, 2007)
• idem, Hypocritical Apple (Trademark), Mises Blog (Jan. 11, 2007)
• ECJ: "Parmesian" Infringes PDO for "Parmigiano Reggiano," I/P Updates (Feb. 27, 2008)
• Mike Masnick, Engadget Mobile Threatened For Using T-Mobile's Trademarked Magenta, Techdirt (Mar. 31, 2008)

Patent

Taken (in part) from my article Radical Patent Reform Is Not on the Way, Appendix: Examples of Outrageous Patents and Judgments:

Examples of (at least apparently) ridiculous patents and patent applications abound (more at PatentLawPractice):

• Amazon's "one-click" patent, asserted against rival Barnes & Noble;
• Cendant's assertion that Amazon violated Cendant's patent monopoly on recommending books to customers (since settled);
• The attempt of Dustin Stamper, Bush's Top Economist, to secure a patent regarding an application for a System And Method For Multi-State Tax Analysis, which claims "a method, comprising: creating one or more alternate entity structures based on a base entity structure, the base entity structure comprising one or more entities; determining a tax liability for each alternate entity structure and the base entity structure; and generating a result based on comparing each of the determined tax liabilities";
• Apple's patent application for digital Karaoke;
• the suit against Facebook by the holder of a patent for a "system for creating a community for users with common interests to interact in";
• the "absurdly broad patent [issued to Blackboard] for common uses of technology if that technology is employed in the context of education" (see also Patent Office Rejects Blackboard E-Learning Patent One Month After It Wins Lawsuit, Techdirt (Mar. 31, 2008);
• Compton's (now Encyclopedia Britannica's) patent that "broadly cover[s] any multimedia database allowing users to simultaneously search for text, graphics, and sounds basic features found in virtually every multimedia product on the market";
• Carfax's patent on a "method for perusing selected vehicles having a clean title history";
• Acacia's patent for putting a unique transaction number on a receipt;[26]
• Pat. No. 6,368,227, covering swinging sideways on a swing;

The Supreme Court, in the 1882 case Atlantic Works v. Brady, 107 US 192, itself lists examples of patents issued to "gadgets that obviously have had no place in the constitutional scheme of advancing scientific knowledge … the simplest of devices." These included

• a particular doorknob made of clay rather than metal or wood, where differently shaped doorknobs had previously been made of clay;
• making collars of parchment paper where linen paper and linen had previously been used;
• a method for preserving fish by freezing them in a container that operates in the same manner as an ice-cream freezer.
• rubber caps put on wood pencils to serve as erasers;
• inserting a piece of rubber in a slot in the end of a wood pencil to serve as an eraser;
• a stamp for impressing initials in the side of a plug of tobacco;
• a hose reel of large diameter so that water may flow through the hose while it is wound on the reel;
• putting rollers on a machine to make it movable;
• using flat cord instead of round cord for the loop at the end of suspenders;
• placing rubber hand grips on bicycle handlebars;
• an oval rather than cylindrical toilet paper roll, to facilitate tearing off strips.

Below are a few notable or recent examples of large, significant, troubling, or apparently outrageous injunctions, damages awards, and the like:

• In Stent Patent War, Boston Scientific Caves (Again), Agrees to Pay Johnson & Johnson $1.725 Billion to Settle Three Cases;
• Qualcomm has been enjoined from importing chips that help conserve power in cell phones (discussion; latest developments). See also Eric Bangeman, ITC to Bar Import of New Handsets in Patent Dustup, ars technica (June 7, 2007); Nokia's Patent-Licensing Case against Qualcomm Dropped by Dutch Court, engadget (Nov. 14, 2007); Broadcom Wins Major Injunction against Qualcomm, engadget (Dec. 31, 2007); ITC Upholds Ruling, Reiterates that Nokia Didn't Violate Qualcomm Patents, engadget (Feb. 29, 2008).
• Texas-Sized Patent Win, Texas Lawyer (Feb. 21, 2008). A New Jersey doctor was awarded $432 Million as a "reasonable royalty" against Boston Scientific for infringing his "Method and Apparatus for Managing Macromolecular Distribution."
• Smartphones Patented … Just About Everyone Sued 1 Minute After Patent Issued, Techdirt (Jan. 24, 2008).
• Farmer David Reaps What He Has Sown: A Patent Suit, Patent Baristas (Feb. 13, 2008) Even though "the practice of saving seeds after a harvest to plant the next season is as old as farming itself," patents prevent farmers from saving patented seeds.
• Apple, Starbucks Sued over Custom Music Gift Cards, AppleInsider (Feb. 20, 2008) A Utah couple sue Apple and Starbucks over their "'Song of the Day' promotion, which offers Starbucks customers a iTunes gift card for a complimentary, pre-selected song download." The suit is based on a patent on a "retail point of sale for online merchandising" which allows customers to buy a gift card from a brick-and-mortar store and then go home and redeem the card online.
• Apple Sued Over Caller ID on the iPhone, Techdirt (Feb. 27, 2008). The patent is on "matching up the phone number of an incoming call with a local contact database to display who is calling."
• The new 802.11n Wi-Fi standard (which promises to significantly increase Wi-Fi speed and range) is in jeopardy due to patent threats. See Bill Ray, Next Generation Wi-Fi Mired in Patent Fears, The Register (Sept. 21, 2007).
• SanDisk Sues 25 Companies for Patent Infringement: "Suits have been filed against 25 companies by the SanDisk corporation this week, as the company looks to stop businesses from shipping products it alleges are infringing on its work. SanDisk has filed suits against everyone from MP3 player manufacturers to USB hard drive creators. The list of defendants is staggering, and MacWorld notes if Sandisk succeeds it could have repercussions outside of the courtroom.… The court … complaints could affect the prices and availability of products made by companies targeted in the suit if SanDisk wins and the companies are barred from importing products into the U.S."
• Patent Office Upholds Tivo's "Time Warp" Patent, EchoStar Not so Happy, engadget (Nov. 29, 2007); see also Tivo Inc. v. EchoStar Communications Corp. (S. D. Tex., Dec. 2, 2006); and TiVo Wins on Appeal: Permanent Injunction against EchoStar to be Reinstated, Patently-O (Jan. 31, 2008).
• Jacqui Cheng, U R SUED: Patent Holding Company Targets 131 Companies over SMS patents, ars technica (Nov. 13, 2007).
• The International Trade Commission (ITC) may ban imports of many popular hard drives that "are alleged to infringe on patents owned by California residents Steven and Mary Reiber related to a 'Dissipative ceramic bonding tool tip.'" Jacqui Cheng, Hard Times for Hard Drives: US May Ban Popular Imports, ars technica (Oct. 11, 2007).
• The VoIP phone service Vonage may be put out of business by patents. Sprint recently won a patent case against Vonage in which $69.5 million was awarded in damages. Sprint had planned "to ask the court to permanently ban Vonage from using its patented technology," but the case was subsequently settled for $80 million. However, in a separate patent lawsuit between Verizon and Vonage, the jury found that Vonage had violated three Verizon patents, and awarded Verizon $58 million in damages plus ongoing royalties. Vonage claims it has developed workarounds for two of the patents. See Kim Hart, Sprint Wins Patent Case Against Vonage: Reston Firm Awarded $69.5 Million in Second Blow to Internet Phone Company, Washington Post (Sept. 26, 2007); Peter Svensson, Vonage Settles Patent Suit with Sprint, BusinessWeek (Oct. 8, 2007). Latest: Vonage Settles with Verizon, Owes Up to $117.5 Million; Vonage, Nortel Call a Truce No Cash Changing Hands, engadget (Dec. 31, 2007).
• Kinsella, Revolutionary Television Design Killed by Patents (2007).
• BlackBerry's manufacturer, RIM, was forced to cough up $612.5 million after NTP used patent law to threaten to shut RIM down.
• Microsoft was on the receiving end of a $1.5 billion jury verdict for infringing an MP3 patent held by Alcatel-Lucent (which was recently overturned).
• After Kodak sought more than $1 billion in damages from Sun Microsystems for patent infringement, Kodak finally settled for $92 million. (And according to one colleague, the verdict resulted "in the immediate shutdown of Kodak's entire instant photography division, with the immediate loss of 800 jobs. And, some say, the eventual failure of Polaroid due to lack of any real competition to keep them on their toes!")
• In another recent case, Freedom Wireless obtained a $150 million damages award against Boston Communications Group, Inc., which at the time had revenues of only about $100 million. In this case, the judge also refused to stay the injunction issues against BCGI (and by extension, its customers) pending appeal.
• Smith International was forced to pay Hughes Tool Company $204.8 million for infringement upon Hughes's patent for an "O-ring seal" rock bit, which led to Smith filing for chapter 11 bankruptcy protection (this was in 1986, when $200 million was considered a large patent verdict).
• As of March 2003, the top 5 patent infringement damage awards ranged from $873 million (Polaroid v. Kodak, 1991) to $204.8 million (Hughes Tool v. Smith International, 1986). The top 5 patent settlements ranged from $1 billion to $300 million. Damage Awards and Settlements, IP Today (March 2003); see also Gregory Aharonian, Patent/Copyright Infringement Lawsuits/Licensing Awards. Sadly, a $200 million verdict seems normal nowadays. The recent $156 million patent-infringement verdict against AT&T, for example which could possibly be trebled by the judge now looks like small potatoes.
• Other recent cases include a $1.67 billion patent infringement verdict in favor of Johnson & Johnson against Abbott; a $400 million settlement paid to Abbot, by Medtronic, regarding stent devices; and a $716 million settlement paid to Johnson & Johnson by Boston Scientific (cardiac stents again).

Copyright

Some of these are also listed in Reducing the Cost of IP Law:

• RIAA Wants $1.5 Million Per CD Copied, Slashdot (Jan. 30, 2008);
• Ford Slaps Brand Enthusiasts, Returns Love With Legal Punch, AdRants (Jan. 14, 2008) (Ford Motor Company claims that they hold the rights to any image of a Ford vehicle, even if it's a picture you took of your own car);
• Jacqueline L. Salmon, NFL Pulls Plug On Big-Screen Church Parties For Super Bowl, Washington Post (Feb. 1, 2008) (NFL prohibits churches from having Super Bowl gatherings on TV sets or screens larger than 55 inches);
• Internet pirates could be banned from web, Telegraph (Feb. 12, 2008) (British proposal to punish individuals who illegally download music by banning them from the Internet); John Tehranian, Infringement Nation: Copyright Reform and the Law/Norm Gap, Utah L. Rev. (forthcoming; SSRN);
• Cory Doctorow, Infringement Nation: we are all mega-crooks, Boing Boing (Nov. 17, 2007);
• Court Says You Can Copyright A Cease-And-Desist Letter, Techdirt (Jan. 25, 2008);
• Kinsella, Battling the Copyright Monster, Mises Blog (June 19, 2006);
• dem, Copyright Kills Amazing Music Project, Mises Blog (Jan. 2, 2008);
• idem, "Fair Use" and Copyright, Mises Blog (Aug. 17, 2007);
• idem, Copyrights and Dancing, Mises Blog (Feb. 20, 2007);
• idem, The "tolerated use" of copyrighted works, Mises Blog (Oct. 27, 2006);
• idem, Copyright and Birthday Cakes, Mises Blog (June 16, 2005);
• idem, Heroic Google Fighting Copyright Morass, Mises Blog (June 2, 2005);
• idem, Copyright Gone Mad, Mises Blog (Apr. 14, 2005);
• idem, Copyright and Freedom of Speech, Mises Blog (Nov. 8, 2004).

See also:

• Joost Smiers & Marieke van Schijndel, Imagine a World Without Copyright, International Herald Tribune (Sat. Oct. 8, 2005);
• Jessica Litman, Revising Copyright Law for the Information Age, 75 Oreg. L. Rev. 19 (1996);
• Kinsella, Copyrights in Fashion Designs?, Mises Blog (Sep. 27, 2006);
• Kinsella, Britain's Copyright Laws, Based on a 300-Year-Old Statute, Desperately Need Reshaping for the Digital Age, Mises Blog (Nov. 2, 2006).
• For a humorous parody of copyright abuses by the RIAA, see CD Liner Notes of the Distant Present, Something Awful (Jan. 3, 2008).

Trade Secret

Even trade secret law, the least objectionable of the four main types of IP, has been corrupted by the state.

• Apple Lawyers Strike Back at Valleywag Over Tablet Bounty;
• [more to come]

[Mises; SK]

Taken from the Appendix to my Mises Daily article Radical Patent Reform Is Not on the Way:

Examples of Outrageous Patents and Judgments

Examples of (at least apparently) ridiculous patents and patent applications abound (more at PatentLawPractice):

• Amazon's "one-click" patent, asserted against rival Barnes & Noble
• Cendant's assertion that Amazon violated Cendant's patent monopoly on recommending books to customers (since settled)
• The attempt of Dustin Stamper, Bush's Top Economist, to secure a patent regarding an application for a System And Method For Multi-State Tax Analysis, which claims "a method, comprising: creating one or more alternate entity structures based on a base entity structure, the base entity structure comprising one or more entities; determining a tax liability for each alternate entity structure and the base entity structure; and generating a result based on comparing each of the determined tax liabilities"
• Apple's patent application for digital Karaoke
• the suit against Facebook by the holder of a patent for a "system for creating a community for users with common interests to interact in"
• the "absurdly broad patent [issued to Blackboard] for common uses of technology if that technology is employed in the context of education" (see also Patent Office Rejects Blackboard E-Learning Patent One Month After It Wins Lawsuit, Techdirt (Mar. 31, 2008)
• Compton's (now Encyclopedia Britannica's) patent that "broadly cover[s] any multimedia database allowing users to simultaneously search for text, graphics, and sounds basic features found in virtually every multimedia product on the market"
• Carfax's patent on a "method for perusing selected vehicles having a clean title history"
• Acacia's patent for putting a unique transaction number on a receipt[26]
• Pat. No. 6,368,227, covering swinging sideways on a swing

The Supreme Court, in the 1882 case Atlantic Works v. Brady, 107 US 192, itself lists examples of patents issued to "gadgets that obviously have had no place in the constitutional scheme of advancing scientific knowledge … the simplest of devices." These included

• a particular doorknob made of clay rather than metal or wood, where differently shaped doorknobs had previously been made of clay.
• making collars of parchment paper where linen paper and linen had previously been used.
• a method for preserving fish by freezing them in a container that operates in the same manner as an ice-cream freezer.
• rubber caps put on wood pencils to serve as erasers
• inserting a piece of rubber in a slot in the end of a wood pencil to serve as an eraser
• a stamp for impressing initials in the side of a plug of tobacco
• a hose reel of large diameter so that water may flow through the hose while it is wound on the reel
• putting rollers on a machine to make it movable
• using flat cord instead of round cord for the loop at the end of suspenders
• placing rubber hand grips on bicycle handlebars
• an oval rather than cylindrical toilet paper roll, to facilitate tearing off strips

Below are a few notable or recent examples of large, significant, troubling, or apparently outrageous injunctions, damages awards, and the like:

• Qualcomm has been enjoined from importing chips that help conserve power in cell phones (discussion; latest developments). See also Eric Bangeman, ITC to Bar Import of New Handsets in Patent Dustup, ars technica (June 7, 2007); Nokia's Patent-Licensing Case against Qualcomm Dropped by Dutch Court, engadget (Nov. 14, 2007); Broadcom Wins Major Injunction against Qualcomm, engadget (Dec. 31, 2007); ITC Upholds Ruling, Reiterates that Nokia Didn't Violate Qualcomm Patents, engadget (Feb. 29, 2008).
• Texas-Sized Patent Win, Texas Lawyer (Feb. 21, 2008). A New Jersey doctor was awarded $432 Million as a "reasonable royalty" against Boston Scientific for infringing his "Method and Apparatus for Managing Macromolecular Distribution."
• Smartphones Patented … Just About Everyone Sued 1 Minute After Patent Issued, Techdirt (Jan. 24, 2008).
• Farmer David Reaps What He Has Sown: A Patent Suit, Patent Baristas (Feb. 13, 2008) Even though "the practice of saving seeds after a harvest to plant the next season is as old as farming itself," patents prevent farmers from saving patented seeds.
• Apple, Starbucks Sued over Custom Music Gift Cards, AppleInsider (Feb. 20, 2008) A Utah couple sue Apple and Starbucks over their "'Song of the Day' promotion, which offers Starbucks customers a iTunes gift card for a complimentary, pre-selected song download." The suit is based on a patent on a "retail point of sale for online merchandising" which allows customers to buy a gift card from a brick-and-mortar store and then go home and redeem the card online.
• Apple Sued Over Caller ID on the iPhone, Techdirt (Feb. 27, 2008). The patent is on "matching up the phone number of an incoming call with a local contact database to display who is calling."
• The new 802.11n Wi-Fi standard (which promises to significantly increase Wi-Fi speed and range) is in jeopardy due to patent threats. See Bill Ray, Next Generation Wi-Fi Mired in Patent Fears, The Register (Sept. 21, 2007).
• SanDisk Sues 25 Companies for Patent Infringement: "Suits have been filed against 25 companies by the SanDisk corporation this week, as the company looks to stop businesses from shipping products it alleges are infringing on its work. SanDisk has filed suits against everyone from MP3 player manufacturers to USB hard drive creators. The list of defendants is staggering, and MacWorld notes if Sandisk succeeds it could have repercussions outside of the courtroom.… The court … complaints could affect the prices and availability of products made by companies targeted in the suit if SanDisk wins and the companies are barred from importing products into the U.S."
• Patent Office Upholds Tivo's "Time Warp" Patent, EchoStar Not so Happy, engadget (Nov. 29, 2007); see also Tivo Inc. v. EchoStar Communications Corp. (S. D. Tex., Dec. 2, 2006); and TiVo Wins on Appeal: Permanent Injunction against EchoStar to be Reinstated, Patently-O (Jan. 31, 2008).
• Jacqui Cheng, U R SUED: Patent Holding Company Targets 131 Companies over SMS patents, ars technica (Nov. 13, 2007).
• The International Trade Commission (ITC) may ban imports of many popular hard drives that "are alleged to infringe on patents owned by California residents Steven and Mary Reiber related to a 'Dissipative ceramic bonding tool tip.'" Jacqui Cheng, Hard Times for Hard Drives: US May Ban Popular Imports, ars technica (Oct. 11, 2007).
• The VoIP phone service Vonage may be put out of business by patents. Sprint recently won a patent case against Vonage in which $69.5 million was awarded in damages. Sprint had planned "to ask the court to permanently ban Vonage from using its patented technology," but the case was subsequently settled for $80 million. However, in a separate patent lawsuit between Verizon and Vonage, the jury found that Vonage had violated three Verizon patents, and awarded Verizon $58 million in damages plus ongoing royalties. Vonage claims it has developed workarounds for two of the patents. See Kim Hart, Sprint Wins Patent Case Against Vonage: Reston Firm Awarded $69.5 Million in Second Blow to Internet Phone Company, Washington Post (Sept. 26, 2007); Peter Svensson, Vonage Settles Patent Suit with Sprint, BusinessWeek (Oct. 8, 2007). Latest: Vonage Settles with Verizon, Owes Up to $117.5 Million; Vonage, Nortel Call a Truce No Cash Changing Hands, engadget (Dec. 31, 2007).
• Kinsella, Revolutionary Television Design Killed by Patents (2007).
• BlackBerry's manufacturer, RIM, was forced to cough up $612.5 million after NTP used patent law to threaten to shut RIM down.
• Microsoft was on the receiving end of a $1.5 billion jury verdict for infringing an MP3 patent held by Alcatel-Lucent (which was recently overturned).
• After Kodak sought more than $1 billion in damages from Sun Microsystems for patent infringement, Kodak finally settled for $92 million. (And according to one colleague, the verdict resulted "in the immediate shutdown of Kodak's entire instant photography division, with the immediate loss of 800 jobs. And, some say, the eventual failure of Polaroid due to lack of any real competition to keep them on their toes!")
• In another recent case, Freedom Wireless obtained a $150 million damages award against Boston Communications Group, Inc., which at the time had revenues of only about $100 million. In this case, the judge also refused to stay the injunction issues against BCGI (and by extension, its customers) pending appeal.
• Smith International was forced to pay Hughes Tool Company $204.8 million for infringement upon Hughes's patent for an "O-ring seal" rock bit, which led to Smith filing for chapter 11 bankruptcy protection (this was in 1986, when $200 million was considered a large patent verdict).
• As of March 2003, the top 5 patent infringement damage awards ranged from $873 million (Polaroid v. Kodak, 1991) to $204.8 million (Hughes Tool v. Smith International, 1986). The top 5 patent settlements ranged from $1 billion to $300 million. Damage Awards and Settlements, IP Today (March 2003); see also Gregory Aharonian, Patent/Copyright Infringement Lawsuits/Licensing Awards. Sadly, a $200 million verdict seems normal nowadays. The recent $156 million patent-infringement verdict against AT&T, for example which could possibly be trebled by the judge now looks like small potatoes.
• Other recent cases include a $1.67 billion patent infringement verdict in favor of Johnson & Johnson against Abbott; a $400 million settlement paid to Abbot, by Medtronic, regarding stent devices; and a $716 million settlement paid to Johnson & Johnson by Boston Scientific (cardiac stents again).
• See also Company that won $585M from Microsoft sues Apple, Google, ars technica (Oct. 6, 2009) (about Eolas, which won a huge patent case against Microsoft in 2003, , and which has now sued 23 other high-tech companies including Apple, Google, Adobe, Amazon, eBay, Playboy, Yahoo, and YouTube for implementing browser plug-ins).

[StephanKinsella.com cross-post]

I previously noted that NTP used the patent system to wring over $600M out of RIM, the manufacturer of the Blackberry smartphone. As noted by Mike Masnick, now RIM has coughed up another quarter billion dollars to another company, Visto ("coincidentally" a licensee of NTP). A quarter billion dollars--everyone yawns. Masnick asks, why did NTP have to pay Visto?

For being the loser in the market place. This is a tax on innovation. The loser in the marketplace forces the winner to hand over a nice chunk of profits. It's bad for everyone (except some lawyers and Visto shareholders).

Masnick is right: this is yet another tax on innovation. Patents are killing innovation (see Yet Another Study Finds Patents Do Not Encourage Innovation). This is the age of technocide.

[Masnick opined that one reason NTP invested in Visto to get it to take out an NTP license was: "That certainly looks like NTP paying a company to license its patents, just to make it looks like there were some legitimate licensees."

This may be right, but as I explain in "Impact of Patent Licensing on Patent Litigation and Patent Office Proceedings" (available on my legal site), "a license under the patent may be offered as persuasive evidence in rebutting a prima facie case for obviousness." In other words, one reason patentees seek to license their patents is to build up the case that the patent is not obvious--to use it in litigation later to help defend the patent.]

[Mises cross-post; SK cross-post]

In EE Times: Opinion: Engineers should stage a patent strike, I noted an op-ed by Rick Merritt in EETimes, "Opinion: Engineers should stage a patent strike."

A Mr. J. C. Cooper, of Pixel Instruments Corp., replied with a letter to the editor in defense of the patent system. My reply is reprinted below:

***

Mr. Cooper writes:

"Your articles in the April 20 edition of EE Times ["Dealing with Mad Patent Disease"] which portray the U.S. patent system as broken and worse seem terribly biased. I wonder where you are getting your information. Surely you don't have any direct experience with patents, e.g. using a patent to protect a money making invention, or you would be able to formulate a more balanced viewpoint."

I'd like to respectfully disagree with some of Mr. Cooper's contentions. As a preliminary matter, I disagree that only those with a lot of experience in patenting are entitled to have an opinion, or ought to be accused of being "biased" if they dissent on the mainstream viewpoint on IP rights. that said, I am a practicing, registered patent attorney, with BSEE and MSEE degrees. I've represented many clients and obtained hundreds of issued patents over the last 15 or so years.

Mr. Cooper writes,

"The patent system could use some tweaking but it is far from the "mad patent disease" you describe. The U.S. needs a stronger patent system, not weaker .... The only way that innovation, and its industry, can be protected is with intellectual property, i.e. patents. To weaken the patent system at the urging and benefit of a few large multinational corporations (most of which have been found guilty in court of stealing the property of others) runs the risk of destroying that one remaining thriving U.S. industry."

There are a few problematic assumptions and chains of reasoning here. I agree that innovation is good, but Mr. Cooper's assumption that "The only way that innovation, and its industry, can be protected is with intellectual property, i.e. patents" is unwarranted. There are of course other ways--exclusion methods; first-to-market; trade secrets, and so on. And there are other methods discussed extensively in Boldrin and Levine's Against Intellectual Monopoly. No one can seriously argue there would be no innovation without patents. At most, you can argue there is more innovation under a patent system.

But the patent system obviously has costs. So the argument that we need a patent system to encourage more innovation assumes that the value of the extra innovation induced by a patent system is greater than the costs of the patent system. But as I note in my article "There's No Such Thing as a Free Patent" (links below to this and others mentioned here), no one has ever been able to show this. In fact, most studies and analyses I'm aware of conclude that if anything, the cost of the patent system is greater than the value of any extra, marginal innovation stimulated. Some analyses even conclude that there is less innovation overall under a patent sytem, than there would be without one--so that added to the undeniable cost of the patent system is the cost of the lost innovation.

If Mr. Cooper is aware of information no one else seems to have--what is the net value of the patent system (i.e., what is the value of the extra innovation induced by the patent system, minus any lost innovation, minus other costs of the patent system), I and others would love to see this data.

Mr. Cooper implies that those opposed to IP rights are biased, or not "balanced," or are mainly "a few large multinational corporations (most of which have been found guilty in court of stealing the property of others)." But surely individuals and even companies are entitled to their viewpoint. It can easily be argued that those who can profit from the patent monopoly granted to them by the state are also biased, and are willing to argue in favor of the patent monopoly system--that they do not really care whether the system is a net benefit to the economy overall--that they are happy to have it exist so long as they benefit from it, even if this is at the expense of overall innovation and growth. Certainly, the deafening silence of advocates of IP to provide any data that supports their contention that patents indeed spur innovation worth more than the cost of the system, casts suspicion on their sincerity. (And is it really that surprising that patent attorneys are almost uniformly pro-IP rights?)

Mr. Cooper's aside that most of the "large multinational corporations" complaining about patents "have been found guilty in court of stealing the property of others" begs the question of whether IP is, or should be, recognized as a legitimate form of property rights, by calling it "stealing" of "property". The question is whether patterns of information are, or ought to be ownable as property. In my view, not only does the patent system cause overall economic damage in the billions of dollars, but patent and copyright are not legitimate forms of property rights--in fact, patent and copyright are contrary to, and undermine, private property rights. As I argue in my book Against Intellectual Property, a free market relies on private property rights being respected, which means scarce resources are owned by the original homesteader of the property, or that person's descendant in title. But to grant a patent to someone who finds a new way to use their own property, is to grant that person some rights in how other people use their own property--this is redistribution from owners, to outsiders. As an example, if the state granted me the right to prevent Mr. Cooper from using his car to transport passengers--if I had this type of veto right--then I could demand he pay me a royalty for my permission to let him carry passengers. I would be a partial owner of his car--where before, he was the full owner, now he is only a part owner. This would be a type of theft of Mr. Cooper's rights in his car, a transfer from him to me. This is what the patent system does, and it is ethically unjustified and contrary to the sanctity of private property rights.

It is understandable that technology companies take advantage of the state's patent system; they have virtually no choice, if only for defensive reasons. And it is understandable they become used to this model, and cannot imagine how their business model would change if the state did not intervene in the market with IP law. But this does not mean IP law is justified.

For those interested in further reading on this (and for links to some of the sources mentioned above), I recommend:

1. The superb new book Against Intellectual Monopoly, by economists Boldrin and Levine.

2. Jeff Tucker's excellent commentaries on Boldrin and Levine.

3. Some of my material, many on Mises.org. Such as: my little book, Against Intellectual Property, my article "There's No Such Thing as a Free Patent," and my presentation, "Rethinking IP Completely," all available here.

4. Mike Masnick's frequent and excellent anti-IP commentary on Techdirt.

There are many other excellent anti-IP pieces, but this is a good starting point.

In Bessen & Meurer latest patent study ("Do patents perform like property?," Academy of Management Perspectives, pp. 8-20 (August 2008)), the authors conclude: "intellectual property rights have at best only a weak and indirect effect on economic growth" and "The direct comparison of estimated net incentives suggests that for public firms in most industries today, patents may actually discourage investment in innovation."

The entire conclusion is below. See also Keith Sawyer's post, Do Patents Increase Innovation?, who note: "In 1999, for example, the total profits from patents in all U.S. public firms (excluding pharma) was about $3 billion, but their litigation costs associated with those patents were a whopping $12 billion!"

The historical evidence, the cross-country evidence, the evidence from economic experiments and estimates of the net benefits of patents all point to a marked difference between the economic importance of general property rights and the economic importance of patents or intellectual property rights more generally. With the cross-country studies in particular, the quality of general property rights institutions has a substantial direct effect on economic growth. Using the *same* methodology and in the *same* studies, intellectual property rights have at best only a weak and indirect effect on economic growth.

The research also suggests a reason why patents differ from general property rights in motivating economic growth overall: the positive effects of patents appear to be highly contingent. Differences in technology and industry seem to matter a lot for twentieth century R&D managers and also for the innovative performance of nineteenth century world's fair exhibitors. Some results from the cross-country studies suggest that less developed countries have a harder time realizing benefits from patents or that countries that participate actively in international trade may benefit more.

Some of these differences arise because of differences in the relative costs and effectiveness of alternatives to patents. Patents may contribute more to economic growth in the pharmaceutical industry than they contribute in electronics industries because the latter can more effectively earn returns on innovation through lead time advantage, sales of complementary products and services, etc. Other differences may arise because of subtle differences in patent institutions. During the nineteenth century, the US patent institutions performed differently (and perhaps better) than their British counterparts. Patents are likely to work better in the pharmaceutical industry because patents on chemical entities have much sharper boundaries than, for example, patents on software.

Of course, the economic effectiveness of all forms of property depends on details of the supporting institutions this is evident from the disparate growth paths of Soviet Bloc economies. But the economic effectiveness of patents may be much more sensitive to the details of the relevant institutions than are general property rights. Perhaps this is because patent law may be much more specialized, complex and sophisticated than, say, real property law and, so, effective institutions may be more difficult to develop and maintain.

In any case, the empirical economic evidence strongly rejects simplistic arguments that patents universally spur innovation and economic growth. The direct comparison of estimated net incentives suggests that for public firms in most industries today, patents may actually discourage investment in innovation.

On Marginal Revolution, Alex Tabarrok reviews Boldrin & Levine's Against Intellectual Monopoly. According to Tabarrok, the book "is a relentless, pounding, take no prisoners attack on patent and copyright law.  It joins Lessig's Free Culture and Heller's The Gridlock Economy as an instant classic and a must-read on these issues. "

I don't know much about Tabarrok but as he has published in the libertarian journal Reason Papers, in The Free Market, and has writen some libertarian-ish sounding books published by the libertarian Independent Institute (and positively reviewed in the QJAE). So I assumed he was a libertarian. But here, though he seems to recognize some (practical) problems with patent and copyright, he doesn't want to abolish the state IP system altogether.

You see, "there is a Laffer curve for innovation - more appropriability increases innovation at first but innovation declines when appropriability extends too far." So though he agrees "with Boldrin and Levine that rent-seeking has put us on the wrong side of the Laffer curve for innovation," we should not abolish IP either. We need to try to "optimize" it, I suppose. Alas, "there is no invisible hand theorem which moves us automatically to the top of the curve".

So, though it's apparently politically impossible ever to "optimize" IP protection, to ensure that we are not "on the wrong side of the Laffer curve for innovation", and economically impossible to know we had reached this point anyway--nonetheless, wealth-maximizers like Tabarrok soldier on, advocating keeping a state-run IP system. So what should we do? "We need to reduce intellectual monopoly with patent reform, less copyright protection, and a greater use of patent substitutes like prizes." In the linked post, Tabarrok writes that he "might actually sign on to" The Medical Innovation Prize Fund Act of 2007, introduced by socialist Senator Bernie Sanders ... a bill which would not even abolish patents, but which would augment the patent system with a taxpayer-funded "medical innovation prize fund"--starting at "$80 billion per year, and increas[ing] with the growth in GDP"... ! Damn, $80 billion down the drain--puts my own little estimate that the patent system imposes around $28 billion in costs to shame!

Advocating state-funded "prizes" is about as unlibertarian as proposal as you'll see. And you don't need to do "marginal analysis" to figure that one out.

***

Update: Tabarrok here advocates using taxpayer funds to pay patentees to give up the patent rights that the federal government grants them. Why not just ... refrain from giving them the patent right in the first place? Because that would cause an "underproduction" of "innovation", by reducing "appropriability." Whatever. So he has to find a way to keep "appopriability high," and thus cannot give up a patent monopoly, or a tax-funded "subsitute" for it.

Anyway, note that the annual $80 billion taxpayer-subsidized fund--well, probably at least $82 billion by now, if we account for GDP growth since 2007, as Sanders and Tabarrok want to -- is for medical innovation only. This covers only a small slice of all patent innovation--in fact the "prize fund" also covers "non-patented products"--because, due to the patent system, "innovations without property rights are underfunded". So consider what this means. If we subsidize medical innovation to the tune of $82B a year, there is no reason not to subsidize other patentable--and even non-patentable--inventive areas. Hell, why stop there? Inventions are not the only types of innovation that should be rewarded. What about the copyright fields, like novels, painting, website design? And other areas of innovation, like boat hull designs and databases? And semiconductor maskworks, and trade secrets? And what about more fundamental research in the basic sciences? Let's see, I think the $82B for medical innovation is at most, say, 10% of all technical innovation. So we need another $820B for other technical fields. And surely the value of the artistic, boat hull design, semiconductor maskwork, and database works are at least on the same order of magnitude as the technicall innovations. So let's say it's another $ trillion, for $2 trillion. A year. To start. Now, what about basic science--physics, math, astronomy? Who can put a value on that? Well, I guess we have to--say, another cool $300B. And what about trademarks? My heavens, they are worth at least as much as patent and copyright, so let's add another trillion. So now we are up to $3.3 trillion. This is in addition to our current $2.5 trillion federal budget. So now the federal budget is, say, $6 trillion, out of about $14 trillion GDP. I'm sure our good marginal economists will assure us that this expenditure will increase appropriability--which will increase innovation, which will have a measurable value--and that this extra value will far exceed the $10 trillion or so that would need to be generated to just break even (assuming 35% of the extra wealth is taxed to replenish the $3.5T annual prize fund). Wow, what a great way to reach a $24 trillion GDP--just increase taxes by $3.5 trillion!! Genius! This never occurred to me. No wonder I'm not an economist.

Update 2:

And get this: according to the text of socialist Sanders's draft bill, the $80 billion+ taxpayer-funded "Fund for Medical Innovation Prizes" will be administed by a "Board of Trustees for the Fund for Medical Innovation Prizes," composed of 13 members serving 4-year terms. The 13 members of the Board are:

(1) the Administrator of the Centers for Medicare & Medicaid Services; (2) the Commissioner of Food and Drugs; (3) the Director of the National Institutes of Health; (4) the Director of the Centers for Disease Control and Prevention; and (5) nine individuals to be appointed by the President, with the advice and consent of the Senate, of which: (A) three representatives of the business sector; (B) three representatives of the private medical research and development sector, including at least one representative of the non-profit private medical research and development sector; and (C) three representatives of consumer and patient interests, including at least one representative of patients suffering from orphan diseases.

Each Board member will be paid at the equivalent of an annual salary of about $140k for daily service. They'll of course have expenses paid, and a staff, and budget to hire experts and consultants.

And every year, the Fund gets public funding equal to "0.6 percent of the gross 6 domestic product of the United States for the preceding fiscal year."

Jesus, this is pure evil.

(Cross-posted at Mises Blog)