See the Patently-O post Shaping Nuanced Patent Injunctions: Broadcom v. Qualcomm, discussing a case in which the Federal Circuit "affirmed a permanent injunction against Qualcomm - finding that the district court acted within its equitable discretion and properly followed the injunctive relief guidelines set forth by the Supreme Court in eBay v. MercExchange (2006)."

The post notes: "This decision is insightful in how it moves the proper focus from whether an injunction should issue to the more nuanced issues of how to shape the injunction in a way that best serves the public interest while still protecting property rights."

Hmm, public interest "versus" property rights? How anyone can think patent law is compatible with property rights is beyond me.

How anyone can think patent law is incompatible with propoerty rights is beyond me.

Therein lies the problem. You do not, and I do. Unless there is common ground, our viewpoints will be diametrically opposed. I am willing to be convinced, but I am still awaiting a reasoned proof based on something other than beliefs and poorly defined "natural rights," which I have been unable to find a definitive list of, and which seem to generate substantial controversy among the proponents thereof.

@Holder:

"How anyone can think patent law is incompatible with propoerty rights is beyond me.

"Therein lies the problem. You do not, and I do. Unless there is common ground, our viewpoints will be diametrically opposed. I am willing to be convinced, but I am still awaiting a reasoned proof based on something other than beliefs and poorly defined "natural rights," which I have been unable to find a definitive list of, and which seem to generate substantial controversy among the proponents thereof."

My comment was not literal; it was meant to express my view that IP is quite obviously incompatible with property rights, when even its advocates contrast its purpose (the "public interest") with "property rights."

My own case against IP does not rest on some exhaustive listing of "natural rights"; it demonstrates that IP is incompatible with (the libertarian conception of) property rights. Justifying the libertarian conception of rights is a separate matter (which I attempt elsewhere). But my argument against IP does establish that if you favor IP, you must favor some form of redistribution of wealth which undercuts property rights established in a peaceful, natural way (for more on why the libertarian view of rights is "natural" but does not rely on "natural rights" or "natural law" theories, see Hoppe, A Theory of Socialism and Capitalism, chapters 1 and 2 (esp. pp. 5-6 & 8-18, discussing notions of scarcity, aggression, property, norms, and justification) and chapter 9, "The Ethical Justification of Capitalism and Why Socialism Is Morally Indefensible" (esp. pp. 130-145).

Stephan:

My comment was not literal; it was meant to express my view that IP is quite obviously incompatible with property rights, when even its advocates contrast its purpose (the "public interest") with "property rights."

It is in your opinion that intellectual property is "quite obviously" incompatible with property rights. I think it is quite obvious that intellectual property is compatible with property rights. However, you do not see my point of view and I do not see yours. I guess that is okay, because people have a right to their beliefs.

But my argument against IP does establish that if you favor IP, you must favor some form of redistribution of wealth which undercuts property rights established in a peaceful, natural way...

I am unsure of how this follows. If I invent a chair, and someone else invents a stool, and someone else invents a rocking chair, and someone else invents a bean bag chair, people still have the option of sitting on the floor, as is typical for some cultures. I would not force someone to buy something they do not need or want (a chair). So, where is the redistribution of wealth? Similarly, I rarely purchase DVD's when they first come out (have you seen the prices on those things!). I wait until the interest dies down and buy it when it hits the $9.99 or less bin (I love those $5 Wal-Mart DVD's). I am certainly not in favor of redistribution of my wealth (to the limit I have it) unless the item I am purchasing is something I absolutely need (how many things do we need that are protected by IP?).

Further, regardless of what the property may be, land, a car, a patent, a shirt, a Hardee's hamburger, or a copyright, I am in favor of a natural and peaceful transfer of the rights for the items I purchase (limited only by natural restrictions; I cannot use the shirt to strangle someone, throw my stuff alongside the road, force someone to eat Hardee's hamburgers until they die, or copy these items and present them as my own).

People have done many things in the name of "public interest," some of which I thought really were in the public interest (again, my belief), and some not. There are public interest arguments for patents, but I am still of the opinion that if I invent something, then I should be given an opportunity to control that invention (not copies of the invention that you purchase - as far as I am concerned, you can do anything you want with the copy you buy - it is your property and the law supports your right to do anything with that copy) for a limited period of time in exchange for revealing the details of my invention.

In a way, I am fine with the elimination of intellectual property, because one of my secondary tasks has always been to evaluate the cost/benefit of patents over trade secrets. In the current environment, patents are cheaper, though their lifetime can be significantly shorter than a well-protected secret. One of my other tasks has been to compartmentalize and protect trade secrets to keep them from our competitors. I can make some trade secrets last forever (though admittedly the longest I have helped to keep a trade secret, which is still secret, is 20 years; I wonder how many more decades we can keep that particular knowledge secret?) - or until someone else spends the money to learn what we have already spent significant resources learning - and trade secrets are less complex to establish. I guarantee you that I will slow the transition of knowledge significantly from my company to anyone else if secrecy is the only method of protecting what we know, and I will do so with as much zeal as I have pursued protection of intellectual property. If you think patents hinder technological progress, you should consider how much trade secrets have slowed progress, and much more effectively, and how much more they will slow technological progress if patents were eliminated. In some narrow fields, such as software, technological progress may speed up, but in other fields technological progress can be significantly impeded, and perhaps almost halted.

I see that our resident troll has been at it again.

"copy these items and present them as my own"

What you are describing is plagiarism, and it infringes the natural right to truth. The copying isn't wrong -- the lying through your teeth is wrong.

Copying items and presenting them honestly as exactly what they are is quite another matter, of course. And it is this that we tend to see on file sharing sites and the like. Not Bon Jovi tunes renamed "Joe User's original composition #19" but clearly labeled as Bon Jovi songs with particular titles.

No plagiarism here. Move along, move along...

"I can make some trade secrets last forever - or until someone else spends the money to learn what we have already spent significant resources learning"

Here is more evil. Needless duplication of work, or else patent royalties. Either creates a deadweight loss to the economy, in the form of make-work done or extortion money paid, respectively.

The open source companies like Red Hat have shown us all a better way, a way that doesn't use IP law, royalties, license fees, or similarly, OR trade secrecy, and moreover they have proven that it is possible to eschew all such "protections" and still be profitable.

You have asserted earlier, and in other threads, that we have only made faith-based arguments against the patent system.

That is not true. We have provided plenty of evidence to support our claims, but you have chosen not to accept it.

We are the evidence-based side of this debate. And yours, with its willful blindness to certain facts and evidence, is the faith-based side.

Might as well don robes, wave a funny-looking stick around, and intone "Hallowed are the Ori"; you might actually convince more people that way.

None of your beeswax:

Here is your problem. You keep claiming you have "facts," and yet I never see them. All I see are subjective comments and distortions of the truth. When I point out facts, no one addresses them. Is it any wonder that a movement to eliminate intellectual property never gets anywhere? Start speaking with logic and facts to support you and the world will listen.

Lonnie:

"NSK: My comment was not literal; it was meant to express my view that IP is quite obviously incompatible with property rights, when even its advocates contrast its purpose (the "public interest") with "property rights.""

"It is in your opinion that intellectual property is "quite obviously" incompatible with property rights. I think it is quite obvious that intellectual property is compatible with property rights. However, you do not see my point of view and I do not see yours. I guess that is okay, because people have a right to their beliefs."

What I meant was: it is not literally "beyond me" why people think they are compatible. But I do think it is pretty easy to see that they are not.

"NSK: "But my argument against IP does establish that if you favor IP, you must favor some form of redistribution of wealth which undercuts property rights established in a peaceful, natural way..."

"I am unsure of how this follows. If I invent a chair, and someone else invents a stool, and someone else invents a rocking chair, and someone else invents a bean bag chair, people still have the option of sitting on the floor, as is typical for some cultures. I would not force someone to buy something they do not need or want (a chair). So, where is the redistribution of wealth?"

If you "invent" a chair and then claim this gives you a right to use force to stop me from making my own chair with my own wood, then you are claiming a right to control how I use my wood and my body. Previously, I owned my wood and my body; now you have gained a partial right of control over them. This is redistribution of wealth.

Stephan:

I encountered a wonderful thesis by a guy named Trerise. I have provided the link below. I am still mulling over the conclusions he draws, but his theory of maximum liberty for both inventors and users (quite well supported, I might add), he calls Weak Type Protection (WTP) as contrasted with Strong Type Protection (STP).

He argues that in order to maximize liberty (he states clearly in his thesis that he is neither arguing for or against Libertarian principles) that an inventor should have the right to earn a living from his inventions, but the inventor should not be able to prevent an individual from making their own copy. Essentially, commercialization of an invention is a right that belongs to an inventor, producing a copy for personal use should be acceptable.

Though part of me squirms when I read his arguments, it is difficult to argue around them because from a liberty viewpoint he makes quite good points. I must admit that my viewpoint has always been from the position of the inventor, and not from society as a whole. What I found interesting is that he (correctly) assumes the position that no IP yields maximum benefit, and then proceeds to prove that no IP actually reduces total liberty (wow, someone involved in this discussion actually using an appropriate technique).

I also found it interesting that he makes some of the points I have also made here about the difficulties of innovation, the cost of innovation and length of time needed for payback, and the benefit innovation provides to society. Quite a good read.

Bottom line: If I make a copy of your patented chair for my own use, am I in violation of current law? Yes. SHOULD I be in violation of current law? Trerise argues no. I find his arguments balanced, compelling and interesting.

http://edt.missouri.edu/Summer2007/Dissertation/TreriseJ-073007-D8217/research.pdf

I am struggling with how you defined redistribution of wealth. I have to ponder that some, because I have yet to understand it. Going off to think now...

Oh, thank you for the post!

…an inventor should have the right to earn a living from his inventions…

Note how you phrase it in a deceiving manner, as if this has to do with the right to earn a living. Everyone has a right to try to earn a living. The chair was invented millennia before the invention of "Intellectual Property". These artificial privileges were clearly never needed to spur the invention of the chair, and they were not needed to spur innovation in the chair industry, nor chair makers making a living. If there is a demand for chairs, the market will, so to speak, find a way to supply chairs (just like life always finds a way). This is basic economics. The claim that "intellectual" goods need some sort of protection racket is preposterous. Just because you cannot figure out how to monetize your creative output, doesn't mean it's not possible. Again, if there is demand, the market will find a way. People would rather have chairs than not have them. A chair maker refusing to make chairs because others can copy them will simply starve, while others will step in to meet those demands. And those others have a right to do so, not just for their own use, but to sell too. Limiting that right limits their liberty. Plain and simple.

Anonymous:

You are correct regarding chairs, and I only chose chairs because they were easy targets. The real issue is that inventions become increasingly complex and expensive to produce, but once produced, they are frequently easy to copy. Your argument that "the market will find a way" is not necessarily true, and in fact is probably NOT true.

Let's take an example. Let's say a company has decided that to increase or maintain market share it needs to develop a new product. Incidentally, everything I am using in this example is from personal knowledge and experience, but the product is unimportant. Let's say that the cost of developing the new product is $5 million and the cost of taking it into production is $2 million.

Now, let's say that the cost of the piece parts is $85, the cost of labor to build the unit is $5, and the cost of overhead to support marketing and application of the product, along with administrative costs, is $25. At this point, the "cost" of the product is $115 per unit, sans profit. Let's say that the minimum profit needed just to justify producing the product as opposed to investing the money in something else is 5%, or $5.75 per unit. Now, we have to figure out how to pay back the $7 million invested in the unit thus far.

Let's assume that the company decides payback needs to be in 5 years, and let's assume that the sales per year are estimated to be 20,000, 100,000, 200,000, 300,000 and 400,000. The total sales are thus 1,020,000 units in five years, so the rounded off amount needed per unit for payback is $7 per unit. So the total price per unit is $127.75.

Okay, year one is fine. The company makes a payback profit of $140,000. However, because there is no IP, a non-creative copying competitor sees their design within weeks of its initial release, and immediately begins reverse engineering the innovations in the design. In addition, they also make some improvements to the design that will ultimately permit them to reduce piece part and labor costs, which we will return to in a moment.

The company does okay in the second year as well because its competitor is a little slow with some of the details of the innovations (no patents, so there are things about some of the innovations that they are trying to understand). So the company sells its 100,000 units in the second year and makes $700,000 in payback profit, thus totaling $840,000 in payback profit.

In the third year the competitor is finally able to reveal its offering. However, it got its piece part cost down to $80, its labor to $4.50, but let's assume its administrative costs are $25, just like the innovative company. However, let's say the competitor, who had no innovation costs to payback, only had to payback the $2 million for taking the copied design into production, and $300,000 for their copying efforts. Let's say that their payback period is also five years, and they assume that assume the same unit sales curve as the innovative company, but they will scavenge the sales of the market maker rather than generating their own sales. They assume that because they will have a lower price, as soon as the market is aware of the product, the competitor assumes they will have 100% of the market. So their unit projections are 20,000 units the first year (third year of the innovator), 150,000 units the second year, 400,000 units the third year, and then 500,000 units the fifth year and every year thereafter (mature market). The amount of recovery is $2.15 per unit, which lets the non-creative competitor sell the unit (including the 5% profit) for $117.13.

Now, the copier scavenged 20,000 units from the 200,000 the innovator planned to sell, so their payback profit the third year is $1,260,000, or $2,100,000 total. The innovator only sells 150,000 units the third year, losing 150,000 units to the copier, so the innovator only makes $1,050,000 the fourth year, for a total of $3,150,000 payback profits. By the fourth year, the competitor has stolen all potential sales from the innovator, and the innovator not only has to eat $3,850,000 in loses, but lays off all the employees making those products as well as the support staff. The innovator quickly realizes there is no money in innovation and decides to copy instead, focusing on cheap crap instead of quality products. Innovation comes to a screeching halt.

The market will find a way? You bet, the market will figure out how to take from the one company that dares to innovate and then run them out of business.

Question: How do you prevent this scenario from happening?

Incidentally, this scenario does happen today, but the innovator, frequently an individual or a smaller company attempting to hold its own against a larger competitor with more resources, or a foreign competitor (China, perhaps) where the innovator did not file for IP protection.

Incidentally, did you even bother to read the almost 200 page thesis or did you just comment based on my comments, woefully abbreviated as they were?

Lonnie,

It is certainly true that the patent system encourages big leaps of innovation, a lot of development done in secret by a single firm and released onto the market at once. I agree with you that to do this without the patent system would be considerably harder. So the patent system does encourage innovation in that sense.

It does so at a cost, namely, by discouraging incremental innovation. I can't think of any really good arguments to argue that we are better off trading incremental innovation for big-leap innovation. Even if we were, the difference would have to be large enough to cover the other substantial costs of the patent system, and that just doesn't seem likely.

Without a patent system, that same product would have been developed by various different firms, each making a small improvement which is rapidly imitated by its competitors which in turn add other small improvements, all trying to gain a competitive edge (and getting it, over a very short term).

Kid:

I am unable to comment on your post. I have no perspective on incremental innovation versus "big-leap" innovaation. Certainly, the vast majority of patents are for incremental innovation. Interestingly, those patents on incremental invention do not seem (by the few that I have studied) to be the ones most litigated.

If you would like an interesting case study, try comparing Tuff Torq (many of their patents are assigned to Kanzaki Kokyukoki), Hydro-Gear, Parker-Hannifin, and Tecumseh. Tuff Torq and Hydro-Gear especially have continuously innovated, both incrementally and "big-leap," and both are still in business and doing well. Parker-Hannifin has now entered the same market and is similarly innovating. If the market is blocked by patents, how could Parker-Hannifin enter the market? The answer is that they are developing their own, different technology rather than copying and being "me-too."

What I have seen in industry is that competitor A makes a small improvement. Competitor B is unable to copy that improvement, so they make a similar small improvement in a different way, improving the functionality incrementally over competitor A. Competitor A realizes it missed an opportunity, so it goes back and improves its product, and tries to outdo competitor B again. In the meantime, Competitor C leapfrogs both Competitor A and Competitor B with an improvement that encompasses the capabilities of both Competitors, without infringing, and does it in a simpler, cheaper and better way.

My experience has been limited to the hardware industries, but this sort of incremental improvement occurs continuously, and customers benefit from the rapid pace of innovation. No stifling of innovation. In fact, a frequent topic of our meetings is how to innovate or invent our way around someone else's invention. It was this very approach that the patent system was intended to foster. Yes, the system assumes that there are ways around any invention. Some people seem to think that some patents are so broad that they block all invention. In a very few, rare, instances, yes, that can happen. I have seen it happen once (my personal exposure with blocking patents - I am sure there are others).

However, most of the time the inventing company is happy to license their mechanism (in the hardware world - I know pharm is different and I am unable to speak about software). So, invention continues unabated. Even when someone is "blocked," that does not mean they stop invention, they just move somewhere else. Companies have an inherent need to make money, and intellectual property is both a weapon and a defense, so most companies just deal with it as a part of business. The only thing that upsets the balance are trolls...

"The answer is that they are developing their own, different technology rather than copying and being "me-too.""

If this means wasteful duplication of work, then patent thickets caused a deadweight loss to the economy here, and raised the barrier to entry. How many more Parker-Hannifins might there have been without these thickets?

"None of your beeswax:

Here is your problem."

No. I have no problem.

"You keep claiming you have "facts," and yet I never see them."

Aren't you overdue for your appointment with your optometrist?

"All I see are subjective comments and distortions of the truth."

No, you're the liar.

"When I point out facts, no one addresses them."

Vacuously true.

I, and probably the others here, are waiting until you point out some facts to address them. Until you do so, there's nothing for us to address.

"Is it any wonder that a movement to eliminate intellectual property never gets anywhere?"

It's gotten quite far already. It has blogs, and sympathy even from major blogs like Techdirt. Napster launched an era of filesharing and the RIAA's laughable lawsuit campaign is like standing on the beach with hands outstretched in an attempt to hold back the tide.

Really, it's already all over but for the shouting and hand-wringing.

"Start speaking with logic and facts to support you and the world will listen."

I, and numerous others, have been speaking with logic and facts to support us. Unlike you.

"no IP actually reduces total liberty"

Nonsense.

"Question: How do you prevent this scenario from happening?"

You don't. Instead, you accept that you won't be paying $5 million up front on R&D to make something huge from scratch, but more commonly making it by improving incrementally on things that existed before. In the rare case of something fundamentally new, you'll trade on your expertise in that new area. The copiers will be the core customers of your consultancy spinoff! You might also use incremental improvements to vie with them for market share. In your scenario, the inventing company simply invented the product and then sat back and waited for money to roll in, resting on its laurels instead of continuing to improve the product. That was obviously a mistake, but patents encourage that sort of behavior. In so doing, patents stifle innovation.

None of your beeswax:

You don't. Instead, you accept that you won't be paying $5 million up front on R&D to make something huge from scratch, but more commonly making it by improving incrementally on things that existed before. In the rare case of something fundamentally new, you'll trade on your expertise in that new area. The copiers will be the core customers of your consultancy spinoff! You might also use incremental improvements to vie with them for market share. In your scenario, the inventing company simply invented the product and then sat back and waited for money to roll in, resting on its laurels instead of continuing to improve the product. That was obviously a mistake, but patents encourage that sort of behavior. In so doing, patents stifle innovation.

You assume that this same company does not follow both business models, which they do. However, our experience was that incremental improvements would keep customers until our competitor a completely new product, and then we lost customers. So, our only option was to "keep up with the Joneses" by continually competing with ourselves with ever better and lower cost products.

I find it fascinating that the posters here keep claiming that IP drives prices higher, when we have been forced through competition and IP to drive prices lower. I am not suggesting that IP works that way in all industries, but in the industries I have been involved in, which are primarily for consumer products, it has.

In fact, the "monopolies" we have been given through are patents are in fact not monopolies at all, because there are alternative methods of doing the same thing, and our competitors have used them - which was the goal of the patent system in the first place.

My case: Kanzaki Kokyukoki (Tuff Torq), Hydro-Gear and Parker-Hannifin in hydraulic drive devices. The prices have gone down continuously over the last two decades, and yet competition, innovation and invention have intensifed, contrary to the predictions here.

"You assume that this same company does not follow both business models, which they do."

No, your own model assumed that the innovator made one big $5 million burst of R&D and then just sat back and waited for the money to roll in.

In the case where it has patent protection, that's exactly what it will do.

In the case where it does not, it will behave, to survive, in a manner different from your model. It will keep one step ahead of the imitators and continue to capture the lion's share of the market, as many companies (fashion industry companies; Red Hat; etc.) already do.

In short, patents are a disincentive to innovate.

You've helped prove my own thesis, to the detriment of your own! Thanks. :)

"In fact, the "monopolies" we have been given through are patents are in fact not monopolies at all, because there are alternative methods of doing the same thing, and our competitors have used them - which was the goal of the patent system in the first place."

Forcing competitors to wastefully reinvent the wheel creates deadweight loss and is not Pareto-optimal.

None of your beeswax:

When you said that they will sit back and wait for the money and then implied that I said that, you are in error. They will continue to innovate, but for how long? They lose money on the development of each innovation, and eventually they will innovate themselves into bankruptcy.

As I have repeatedly pointed out, and which you have conveniently ignored, is that the fashion industry and software do not require the development and capital costs required by manufacturing processes that require castings, stampings, electronics and the like.

Thank goodness that your unworkable model will not be implemented in my lifetime or the lifetime of my children.

"When you said that they will sit back and wait for the money and then implied that I said that, [insult deleted]"

No. You are the one who is in the wrong here.

"They lose money on the development of each innovation, and eventually they will innovate themselves into bankruptcy."

You seemed to think their competition would be able to make money incrementally innovating their product. Your model was, as you'll recall:

Company A spends $5 million on R&D, produces a product, and sells it, expecting certain sales numbers over time.

Company B copies A's product, makes a marginal improvement, and eats into company A's market share, knocking A's expected sales numbers into a cocked hat.

This has both of the following: A sits back and waits for money to roll in without innovating further. B innovates in an incremental manner.

B apparently turns a profit doing so. So much for "innovation is unprofitable".

If A also makes marginal improvements, or if B does not, historical evidence shows that A can expect to retain the lion's share of the market.

If A doesn't want to spend $5 million on R&D that B will copy for free, A can hammer out a deal with B in which they each pool $2.5 million into an R&D fund, where reneging is a breach of contract with substantial penalties and the fund goes to hiring an R&D firm jointly decided on, whose results will be shared with all. (Similar arrangements can be made with larger numbers of companies. Also, R&D firms can say we can develop X and hold an auction; the highest bidder pays, gets first crack at marketing X, but eventually gets copied, as they can't keep the sekrit forumla for X secret forever.)

"As I have repeatedly pointed out, and which you have conveniently ignored"

I have done no such thing, liar.

"is that the fashion industry and software do not require the development and capital costs required by manufacturing processes that require castings, stampings, electronics and the like."

Oh, come off it. It's relatively cheap to make (scaled-down) prototypes these days, particularly of electronics and purely mechanical gadgets.

Aside from that, lots of capital-intensive industries innovate without any so-called "IP protection", and have done throughout history since the industrial revolution. Agriculture comes to mind -- only recently has there been any real intrusion of "IP" in the area of crop varieties.

"Thank goodness that your unworkable model will not be implemented in my lifetime or the lifetime of my children."

My model already has been implemented by many industries. Fortunately for you, it is not unworkable, despite your claims.

"When you said that they will sit back and wait for the money and then implied that I said that, you are in error."

No. You are the one who is in the wrong here.

You are still in error. I have never said that they should "sit back and wait for the money." Indeed, Company A will attempt to continue to innovate, Company B will continue to copy, and eventually Company A will go out of business, whereupon Company B will no longer need to innovate.

"They lose money on the development of each innovation, and eventually they will innovate themselves into bankruptcy."

You seemed to think their competition would be able to make money incrementally innovating their product. Your model was, as you'll recall:

Company A spends $5 million on R&D, produces a product, and sells it, expecting certain sales numbers over time.

Company B copies A's product, makes a marginal improvement, and eats into company A's market share, knocking A's expected sales numbers into a cocked hat.

This has both of the following: A sits back and waits for money to roll in without innovating further. B innovates in an incremental manner.

B apparently turns a profit doing so. So much for "innovation is unprofitable".

If A also makes marginal improvements, or if B does not, historical evidence shows that A can expect to retain the lion's share of the market.

How many examples do you have of this? I will take two examples of manufacturing companies that have done this and survived.

If A doesn't want to spend $5 million on R&D that B will copy for free, A can hammer out a deal with B in which they each pool $2.5 million into an R&D fund, where reneging is a breach of contract with substantial penalties and the fund goes to hiring an R&D firm jointly decided on, whose results will be shared with all. (Similar arrangements can be made with larger numbers of companies. Also, R&D firms can say we can develop X and hold an auction; the highest bidder pays, gets first crack at marketing X, but eventually gets copied, as they can't keep the sekrit forumla for X secret forever.)

It is possible that they might do this. I suspect it is just as likely that both will decide to hang on to market share and see what the other will do, not wanting to spend R&D money on a fruitless effort. Innovation will stagnate unless someone else comes in with a replacement product - which they might well copy, again putting the innovative company at a financial disadvantage.

"As I have repeatedly pointed out, and which you have conveniently ignored"

I have done no such thing, liar.

"is that the fashion industry and software do not require the development and capital costs required by manufacturing processes that require castings, stampings, electronics and the like."

Oh, come off it. It's relatively cheap to make (scaled-down) prototypes these days, particularly of electronics and purely mechanical gadgets.

Really, please come teach my company how to do that. Oh, wait, our customers will not accept test results from cheap scaled down prototypes, they want expensive full-sized prototypes that are produced in a production like way to be representative of the final product that they can deploy in a series of expensive, intensive tests.

Aside from that, lots of capital-intensive industries innovate without any so-called "IP protection", and have done throughout history since the industrial revolution. Agriculture comes to mind -- only recently has there been any real intrusion of "IP" in the area of crop varieties.

Oh, you are humorous. John Deere has an incredible patent portfolio. Case has a significant patent portfolio. Indeed, all the agricultural companies that produce equipment for that industry have significant IP portfolios. In fact, many of the less innovative or non-innovative farm equipment manufacturers have been either driven out of business or absorbed.

"Thank goodness that your unworkable model will not be implemented in my lifetime or the lifetime of my children."

My model already has been implemented by many industries. Fortunately for you, it is not unworkable, despite your claims.

Which manufacturing industries would those be? Perhaps I overlooked them?

"You are still in error."

No. I am not. And you will stop publicly lying about me or else.

"I have never said that they should "sit back and wait for the money.""

Not in so many words, but your earlier post implied it.

You said, earlier (trimmed for space):

"Let's say a company has decided ... to develop a new product. The cost of developing the new product is $5 million and the cost of taking it into production is $2 million. Now, let's say that the cost ... is $115 per unit, sans profit. Let's say that the minimum profit needed ... is 5%, or $5.75 per unit. Now, we have to figure out how to pay back the $7 million invested in the unit thus far.

Let's assume that the company decides payback needs to be in 5 years, and let's assume that the sales per year are estimated to be 20,000, 100,000, 200,000, 300,000 and 400,000. The total sales are thus 1,020,000 units in five years, so the rounded off amount needed per unit for payback is $7 per unit. So the total price per unit is $127.75.

Okay, year one is fine. The company makes a payback profit of $140,000. However, because there is no IP, a non-creative copying competitor sees their design within weeks of its initial release, and immediately begins reverse engineering the innovations in the design. In addition, they also make some improvements to the design that will ultimately permit them to reduce piece part and labor costs, which we will return to in a moment."

The implied plan of Company A here is: * Spend $7 million on R&D * Start manufcaturing product * Sit back and let the money pour in according to a particular predicted schedule of sales.

The implied plan of Company B here is: * Copy off company A * Improve on A's product

In short, A stops innovating and B innovates, and then A winds up in trouble.

That's not because of lack of a patent system. It's because A doesn't maintain parity with B in product features and capabilities in your scenario.

"In the third year the competitor is finally able to reveal its offering. However, it got its piece part cost down to $80, its labor to $4.50, but let's assume its administrative costs are $25, just like the innovative company."

The competitor is also an innovative company -- how can it not be, since it obviously made improvements to process to get its costs down?

At this point, it's pretty clear who deserves to win in the marketplace.

Unfortunately, patent law creates a world where winners innovate and losers litigate, instead of what we should have, one where winners innovate and losers just meekly go to the courthouse and file Chapter 11.

"they assume that assume the same unit sales curve as the innovative company, but they will scavenge the sales of the market maker rather than generating their own sales."

Companies have tried that vs. Red Hat, including Oracle, without managing to unseat Red Hat. Don't underestimate the power of marketing and having a well-recognized brand name, even versus competition with equal marketing muscle and a well-recognized name of their own.

If B doesn't do much marketing and just hopes to capture comparison shoppers, B will end up taking the low end of the market and leaving the high end to A. A will probably develop an image as a luxury brand, and further differentiate its product line on that basis, while B produces budget versions and eventually does market itself, as a budget brand.

A becomes like Mercedes and B like Volvo.

What a tragedy for innovation!

Versus your idealized patent-rich world, in which consumers end up hiking and biking everywhere because there are no Volvos, only Mercedes, and most people can't afford the Mercedes. For twenty years, until the damnable patent expires. Then Company A, whose main expense by this time is paying armies of lawyers and advertisers rather than doing truly productive work, patents a safety innovation or environmentally-friendly modification and lobbies to have the original, less-safe or non-green design declared illegal. Or they influence a standardization committee and patent something needed to make the products compliant with the new standard. Or whatever. That shuts B out of the market for another twenty years. Everyone continues walking or biking. And so it goes.

"IP protection" is protectionism, and protectionism is a Bad Thing. Just look at how little innovation there has been in the video player space compared to the music player space. The difference? Big "standardization" organizations and accompanying "IP", particularly DVD CCA and AACS LA and their DMCA-based lockdown on making interoperable products. Essentially, key aspects of the DVD technology have been "patented" through a copyright-based, rather than actual patent-based, method. As a result, there's nothing in video like the vibrant ecosystem of third-party tools, portable players, jukeboxes, format-shifters, time-shifters, and space-shifters that exists around music. There's just YouTube (grainy, short videos over a slow net connection), DVDs, regular TV, and Tivo (which periodically gets made worse, less useful for e.g. skipping ads or building up a big permanent library of your favorite stuff to watch unlike with your iPod, and no competitors jumping in to offer a cheaper and better alternative).

"They assume that because they will have a lower price, as soon as the market is aware of the product, the competitor assumes they will have 100% of the market."

Tell me, when has this ever actually happened? If this were accurate, Coca-Cola could kill Pepsi (or vice versa) practically overnight by dropping their prices by one cent; whoever did so first would instantly capture 100% market share.

Obviously, in the real world that is not what happens.

"The amount of recovery is $2.15 per unit, which lets the non-creative competitor sell the unit (including the 5% profit) for $117.13."

What's non-creative about them? They made process improvements ("it got its piece part cost down to $80, its labor to $4.50") and product improvements ("in addition, they also make some improvements to the design") according to your own words.

And you didn't say anything about A making any such improvements.

"By the fourth year, the competitor has stolen all potential sales from the innovator"

Strong words. But here in the real world, poaching potential sales is called "competition", not "theft". Price wars happen all the time and it's no disaster for innovation.

"The innovator quickly realizes there is no money in innovation"

This seems to be all too common. A company invents one thing, starts making and selling it, and expects that that will guarantee it an unending revenue stream, then thinks it's an "innovator". When that revenue stream flows for a while and then dries up, the stupid "innovator" then thinks "there's no money in innovation". What those idiots haven't realized is that innovation is an ongoing process, not something you do once and then you're "an innovator" even after not having done any innovating for more than half a decade, and that what "there's no money in" is actually "not innovating" rather than "innovation". Your Company A invents something and then expects the world to stand still for five years until they have recouped their investments and turned a tidy profit. The nature of a market economy is that Company A is on a treadmill and has to not fall off the back end of it. Smart companies realize this. Stupid companies don't and go bankrupt. Moderately dumb companies that are also evil do realize it, but figure to try to cheat by trying to turn off the treadmill, usually either through legislation or through litigation. They still end up failing.

Consider RIM and NTP. RIM: true innovator, marketplace success, bullied out of three quarters of a billion dollars by NTP, and still successful. NTP: litigator, marketplace failure, extorted three quarters of a billion dollars from a successful rival, and still a failure.

Evil and dumb. Even by "cheating" instead of playing by free-market rules they did not succeed. What a bunch of maroons!

Yet you would hand them the means to "cheat" in the marketplace, futile and innovation-hostile though such a policy actually has proven to be.

"Indeed, Company A will attempt to continue to innovate, Company B will continue to copy, and eventually Company A will go out of business, whereupon Company B will no longer need to innovate."

You underestimate the first-mover advantage of company A in this revised model. A will capture a persistent share of the market.

Besides, your preference is apparently essentially symmetrical: B will attempt to continue to innovate, A will sue, B will go out of business, whereupon A will no longer need to innovate.

"If A also makes marginal improvements, or if B does not, historical evidence shows that A can expect to retain the lion's share of the market."

How many examples do you have of this? I will take two examples of manufacturing companies that have done this and survived.

Cars: lots of companies manufacture them and many do a better job of it, but Ford still has a big chunk of the US domestic market.

PC-clone personal computers: lots of companies manufacture them but IBM still has a big chunk of the market.

IBM is an especially good example. IBM let its architecture be easily cloned, but IBM did not become unprofitable, nor find it necessary to eliminate their PC-producing division as unprofitable. Indeed, the easy cloning and open architecture, unencumbered by patents, made it cheap and easy for lots to get into the field and for consumers to buy, growing the overall market and creating a thriving ecosystem. That ecosystem in turn produced huge successes elsewhere: Microsoft, consumer Internet providers, eventually Google, YouTube, and the rest. Dot-coms, the entire NASDAQ index, all of it built "on the back" of IBM, but IBM came out of it quite well by playing the free-market game with skill rather than by trying to cheat by going whining "No fair! He COPIED off me!" to the feds or whatever.

IBM continues to innovate and to participate in the tech market. Besides laptops and computers, and their continued even-older business of bigger machines and printers, they have software business -- WebSphere among others. In fact they have their fingers in quite a lot of open-source pies, Linux and Eclipse among others. More copyable stuff.

By your theory, IBM should be dead now, its market share eaten alive by clone-makers back in the late 80s.

Why is it thriving, Lonnie?

Why, unless perhaps you are wrong?

"It is possible that they might do this. I suspect it is just as likely that both will decide to hang on to market share and see what the other will do, not wanting to spend R&D money on a fruitless effort."

That's not what IBM did.

"Innovation will stagnate unless someone else comes in with a replacement product - which they might well copy, again putting the innovative company at a financial disadvantage."

Innovation expenses are an investment. Shrinking the market and blowing money on lawyers is not the best way (or even, usually, any way at all) to protect that investment. Further innovation is often the protection needed, along with some degree of marketing savvy. It also helps to invent a product that doesn't suck.

"Really, please come teach my company how to do that."

My consulting fees start at $1500 an hour. Convince me you're serious and I'll furnish contact info.

"Oh, wait, our customers will not accept test results from cheap scaled down prototypes, they want expensive full-sized prototypes that are produced in a production like way to be representative of the final product that they can deploy in a series of expensive, intensive tests."

Are your customers willing to pay for all this stuff? If so, then you don't have a problem here.

Cheap, scaled-down prototypes are of course not the only ones you use, just the first ones. You tweak those, and when you think you're close, then you invest in bigger, higher-fidelity prototypes, and eventually in manufacturing an actual product line.

""Agriculture comes to mind -- only recently has there been any real intrusion of "IP" in the area of crop varieties."

Oh, you are humorous. John Deere has an incredible patent portfolio."

Crops, not tractors. Lots of time, effort, and money got invested in cross-breeding and other R&D on crop varieties even though they could be easily copied. Your theory predicts that this field should have stagnated without IP. Also that IBM's PCs being cloned should have killed IBM. Your theory is wrong. Time to face facts, Lonnie. The evidence does not bear out your viewpoint. It does support mine.

""My model already has been implemented by many industries. Fortunately for you, it is not unworkable, despite your claims."

Which manufacturing industries would those be? Perhaps I overlooked them?"

See above for examples of innovation thriving despite rampant copying. Also, the entire history of innovation in mechanical tools AND crops AND anything else prior to circa 1600 CE. By your theory, until the first modern-looking copyright and patent laws were passed no earlier than that time, we should not have had any progress, so by your theory, in 1500 CE humans were still hunter-gatherers living in small tribes with no civilization, reading, or writing. In the real world, though, there was civilization, reading, writing, the wheel, and oh so much more way way back over six thousand years earlier still.

Explain that, o defender of evil mercantile privilege!

This has both of the following: A sits back and waits for money to roll in without innovating further. B innovates in an incremental manner.

B apparently turns a profit doing so. So much for "innovation is unprofitable".

You wrote assumptions into my scenario that I did not make. If you want to create a scenario, do so. Otherwise, stop copying mine.

Company A will try to make improvements, spending more money than B each time, since B will immediately copy A, at lower cost, since copying is always cheaper than innovating. Eventually, A goes out of business, and B no longer needs to innovate. Further, B can't innovate, because B's only expertise was make small improvements on someone else's invention. They never made the investment to become inventive themselves. The market stagnates, but no one else is interested in entering the market because the profits are insufficient to do so.

Oh, come off it. It's relatively cheap to make (scaled-down) prototypes these days, particularly of electronics and purely mechanical gadgets.

I have asked you before, and I ask again, what industry are you doing engineering for? My customers will not accept scaled-down prototypes. Ergo, your assumption is incorret. That is not an insult, that is a statement of fact.

My model already has been implemented by many industries. Fortunately for you, it is not unworkable, despite your claims.

Still waiting for that industry. Agriculture is obviously not it, since it is one of the hottest areas for intellectual property. Very litigious, in fact.

Unfortunately, patent law creates a world where winners innovate and losers litigate, instead of what we should have, one where winners innovate and losers just meekly go to the courthouse and file Chapter 11.

Actually, according to numerous studies, patent law creates a world where inventive companies become winners and copiers try to buy up patents from someone else and litigate. Without patent law, the copiers would just copy and drive the inventive companies into the courthouse to file chapter 11.

Companies have tried that vs. Red Hat, including Oracle, without managing to unseat Red Hat. Don't underestimate the power of marketing and having a well-recognized brand name, even versus competition with equal marketing muscle and a well-recognized name of their own.

Ah yes. Well, I never said Red Hat was a manufacturing company. I have even suggested that patents may not work or work as well for software. On the other hand, I have seen companies substitute marketing and a well-recognized name for invention. It is sad, but it happens.

Versus your idealized patent-rich world, in which consumers end up hiking and biking everywhere because there are no Volvos, only Mercedes, and most people can't afford the Mercedes. For twenty years, until the damnable patent expires. Then Company A, whose main expense by this time is paying armies of lawyers and advertisers rather than doing truly productive work, patents a safety innovation or environmentally-friendly modification and lobbies to have the original, less-safe or non-green design declared illegal. Or they influence a standardization committee and patent something needed to make the products compliant with the new standard. Or whatever. That shuts B out of the market for another twenty years. Everyone continues walking or biking. And so it goes.

How interesting. We are in a patent-rich world, and yet consumers end up driving when they want to, and have more choice of vehicles than has ever existed at any one time in the history of man. Further, all these automotive companies are only paying their legal staff a small fraction of their income, and more of that is for liability issues than intellectual property issues.

On the other hand, as you noted earlier, never underestimate the value of marketing, because that is where they do put too much of their money.

As for you example about standards, oops, someone just got caught doing that. Guess what happened? Wrong. The standard was enforced, and the patent was essentially given to the market. Naughty naughty trying to conduct fraud on the public.

"IP protection" is protectionism, and protectionism is a Bad Thing.

Ah, but numerous studies have shown that this kind of protectionism is not a bad thing.

Just look at how little innovation there has been in the video player space compared to the music player space. The difference? Big "standardization" organizations and accompanying "IP", particularly DVD CCA and AACS LA and their DMCA-based lockdown on making interoperable products. Essentially, key aspects of the DVD technology have been "patented" through a copyright-based, rather than actual patent-based, method. As a result, there's nothing in video like the vibrant ecosystem of third-party tools, portable players, jukeboxes, format-shifters, time-shifters, and space-shifters that exists around music. There's just YouTube (grainy, short videos over a slow net connection), DVDs, regular TV, and Tivo (which periodically gets made worse, less useful for e.g. skipping ads or building up a big permanent library of your favorite stuff to watch unlike with your iPod, and no competitors jumping in to offer a cheaper and better alternative).

I know very little about DVDs. Patents are not copyrights. Learn the difference. If something is "copyrighted," all a person has to do is create something different. Not that difficult. Far easier than trying to innovate around a patent.

On the other hand, look at how much innovation there has been in pharmaceuticals, which numerous studies (oh dear, even studies cited by anti-IP advocates) agree benefit from intellectual property. In fact, we have more drugs, covering more diseases, because of intellectual property.

Tell me, when has this ever actually happened? If this were accurate, Coca-Cola could kill Pepsi (or vice versa) practically overnight by dropping their prices by one cent; whoever did so first would instantly capture 100% market share.

Obviously, in the real world that is not what happens.

Well, thank goodness for Coke and Pepsi that their cost of innovation is quite low. They can experiment and not have it be fatal, though new Coke was nearly fatal for Coke. On the other hand, Coke has dropped their price, and Pepsi, which once had about equal share of the market, has steadily lost market share over the last couple of decades. If the current trend continues, Pepsi may well go the way of the dinosaur.

What's non-creative about them? They made process improvements ("it got its piece part cost down to $80, its labor to $4.50") and product improvements ("in addition, they also make some improvements to the design") according to your own words.

What is "non-creative"? Well, they had a chance to see how the product was made. They recognized errors the first company made while being inventive, and realized bandaids the first company made to make their product work. Knowing the product works, they did not have to build in the mistake to correct it. Nothing creative about that, it is just applying routine engineering skills to build a known product.

And you didn't say anything about A making any such improvements.

Once the tooling is done, fixing problems that occur along the way is expensive. Most manufacturing companies will leave the fixes in until the next round of tooling and incorporate the improvements then. Depending on how developed the market is, new tooling for the first company could be three or four years after the start of production.

Strong words. But here in the real world, poaching potential sales is called "competition", not "theft". Price wars happen all the time and it's no disaster for innovation.

In the real world, poaching potential sales using the competitor's patented product is called illegal. In some countries (though not the United States), you can go to prison for that.

This seems to be all too common. A company invents one thing, starts making and selling it, and expects that that will guarantee it an unending revenue stream, then thinks it's an "innovator".

All the first company wants to do is make its investment back, plus a little profit. The "unending revenue" is your words, and in the real world, the competitor comes up with an inventive competing product several years later, and the market decides which of the two patented products (which, if the market is big enough, becomes three, four, etc.) is the better product.

When that revenue stream flows for a while and then dries up, the stupid "innovator" then thinks "there's no money in innovation". What those idiots haven't realized is that innovation is an ongoing process, not something you do once and then you're "an innovator" even after not having done any innovating for more than half a decade, and that what "there's no money in" is actually "not innovating" rather than "innovation". Your Company A invents something and then expects the world to stand still for five years until they have recouped their investments and turned a tidy profit.

Company A assumes that Company B, and Company C, will come up with their own invention. In the meantime, Company A is developing the follow on product. Company A will continue to stay ahead of Company B and Company C because intellectual property will force Company B and Company C to come up with their own, original solution, rather than picking up stale breadcrumbs from Company A. The world expects Company B and Company C to develop competitive products rather than being yet another "me-too" company. The world ends up with lots of product selection.

Consider RIM and NTP. RIM: true innovator, marketplace success, bullied out of three quarters of a billion dollars by NTP, and still successful. NTP: litigator, marketplace failure, extorted three quarters of a billion dollars from a successful rival, and still a failure.

Wrong. NTP is a success because it's only purpose was litigating patents. It had no other purpose. I wondered why RIM kowtowed to NTP. They could never have gotten a preliminary injunction because the patents were all being re-examined. Very sad that RIM made the stupid move.

[Insult deleted]

You underestimate the first-mover advantage of company A in this revised model. A will capture a persistent share of the market.

As has been shown in numerous studies, first-mover has limited advantage is some industries, and virtually none in others.

Besides, your preference is apparently essentially symmetrical: B will attempt to continue to innovate, A will sue, B will go out of business, whereupon A will no longer need to innovate.

I did encourage you to modify my assumptions, and you did. However, B will invent, instead of just copying, and C will invent, instead of just copying, and the best product will win the market place. Then, the company that goes out of business will sell its intellectual property to one of the other two companies, or a new company, and competition will intensify again.

"If A also makes marginal improvements, or if B does not, historical evidence shows that A can expect to retain the lion's share of the market."

How many examples do you have of this? I will take two examples of manufacturing companies that have done this and survived.

Cars: lots of companies manufacture them and many do a better job of it, but Ford still has a big chunk of the US domestic market.

A rapidly decreasing chunk of the market, sadly enough. The highest initial car quality company is being beat by the #3 company in initial car quality, who is not even the most innovative company. Interestingly, car companies have huge patent portfolios, but rarely go to court over them.

PC-clone personal computers: lots of companies manufacture them but IBM still has a big chunk of the market.

I think you are a little behind the times. IBM has a ZERO share of the market. IBM no longer makes PC's.

IBM is an especially good example. IBM let its architecture be easily cloned, but IBM did not become unprofitable, nor find it necessary to eliminate their PC-producing division as unprofitable.

Before IBM sold their PC business to Lenovo, estimates were that IBM's share of the PC market had fallen to 5%. Lenovo's market share is up to 7.3% in the most recent quarter, down from 7.8% last year, well behind #1 HP, with 18.4%, #2 Dell, 13.6% and Acer with 12.5%.

Indeed, the easy cloning and open architecture, unencumbered by patents, made it cheap and easy for lots to get into the field and for consumers to buy, growing the overall market and creating a thriving ecosystem. That ecosystem in turn produced huge successes elsewhere: Microsoft, consumer Internet providers, eventually Google, YouTube, and the rest. Dot-coms, the entire NASDAQ index, all of it built "on the back" of IBM, but IBM came out of it quite well by playing the free-market game with skill rather than by trying to cheat by going whining "No fair! He COPIED off me!" to the feds or whatever.

The computer industry has a very different business model that will not work for chemical companies, pharmaceuticals, and companies that make product such as cars, trucks, engines and transmissions. I would explain in more detail the differences, but with your engineering skill, I am sure you know this already.

IBM continues to innovate and to participate in the tech market.

IBM no longer makes PCs.

By your theory, IBM should be dead now, its market share eaten alive by clone-makers back in the late 80s.

Why is it thriving, Lonnie?

[Insult Deleted]

I have said a number of times that software does not appear to benefit uniformly from intellectual property.

"Oh, wait, our customers will not accept test results from cheap scaled down prototypes, they want expensive full-sized prototypes that are produced in a production like way to be representative of the final product that they can deploy in a series of expensive, intensive tests."

Are your customers willing to pay for all this stuff? If so, then you don't have a problem here.

Of course not. They think the samples should be provided for free.

Cheap, scaled-down prototypes are of course not the only ones you use, just the first ones. You tweak those, and when you think you're close, then you invest in bigger, higher-fidelity prototypes, and eventually in manufacturing an actual product line.

Thank you for teaching me my job. This is exactly what we do. However, we typically spend somewhere between $1 million and $2 million for full-sized prototypes and the testing necessary to validate those units, which includes follow on prototypes when to improve the performance of the initial prototypes, since scaled down models do not function like full-sized models.

Crops, not tractors. Lots of time, effort, and money got invested in cross-breeding and other R&D on crop varieties even though they could be easily copied. Your theory predicts that this field should have stagnated without IP.

I guess you have yet to hear of Monsanto and their patented crops. Crops form one of the biggest areas of litigation in biology right now. Very hot area with lots of IP.

Also that IBM's PCs being cloned should have killed IBM. Your theory is wrong. Time to face facts, Lonnie. The evidence does not bear out your viewpoint. It does support mine.

So sad the IBM decided it was no longer in their best interest to continue to make PCs, so they chose to focus on more profitable businesses. Incidentally, IBM has been the patent winner for quite a long time now. More than 3,000 patents per year, the #1 patenting company in the WORLD.

See above for examples of innovation thriving despite rampant copying. Also, the entire history of innovation in mechanical tools AND crops AND anything else prior to circa 1600 CE. By your theory, until the first modern-looking copyright and patent laws were passed no earlier than that time, we should not have had any progress, so by your theory, in 1500 CE humans were still hunter-gatherers living in small tribes with no civilization, reading, or writing. In the real world, though, there was civilization, reading, writing, the wheel, and oh so much more way way back over six thousand years earlier still.

Explain that, o defender of evil mercantile privilege!

It took us several thousand years to develop any sort of basic technology. We implement intellectual property, and technology progresses faster in 100 years than it has in the entire recorded history of mankind, put together. So, would I rather we progressed at the rate we were before, or how we have progressed since the implementation of intellectual property? I know which I choose.

NO. YOUR POST IS TOO LONG AND TOO REPETITIVE. DO NOT POST ANYTHING THIS LONG-WINDED AND USELESS AGAIN. I SHOULD NOT HAVE TO TELL YOU AGAIN! I HAVE BETTER THINGS TO DO WITH MY TIME THAN SPEND SEVERAL FULL HOURS CORRECTING ALL OF YOUR MISTAKES. CONFINE YOUR COMMENT POSTING TO a) RECENT BLOG POSTS; b) TOPICS YOU ARE ACTUALLY EDUCATED ABOUT AND CAN DISCUSS INTELLIGENTLY; and c) TOPICS REGARDING WHICH YOU ARE WILLING TO ACCEPT CORRECTION MEEKLY AND THEN SHUT UP WHEN PROVEN WRONG.

"You wrote assumptions into my scenario that I did not make."

No, I did not. I took your words at face value, no more, no less.

Stop lying about me.

"Company A will try to make improvements"

That was not in your original scenario.

"spending more money than B each time, since B will immediately copy A"

Why assume that? In the real world, A and B will both innovate, and each copy the innovations the other made first. A will add feature X and B feature Y. Then A will clone feature Y and B feature X.

This is what goes in in the real world. If you'd crawl out from under your rock once in a while you might notice it.

"Further, B can't innovate, because B's only expertise was" [rest is ungrammatical nonsense]

For a while, the only source of such expertise is A. That expertise is scarce and valuable. A can make money by consultancy fees or similarly. This, too, frequently happens in the real world.

""Oh, come off it. It's relatively cheap to make (scaled-down) prototypes these days, particularly of electronics and purely mechanical gadgets."

I have asked you before, and I ask again, what industry are you"

I will not be sidetracked by irrelevant and random questions.

"My customers will not accept scaled-down prototypes."

They wouldn't have to. The prototypes are for R&D, not substitutes for the final product. Any ten-year-old randomly picked in the street is likely to know the meaning of the term "prototype". Which makes you what, nine? Or less.

"Ergo, your assumption is incorret."

NO. NOTHING ABOUT ME IS "INCORRET"[sic].

HENCEFORTH, YOU WILL REFRAIN FROM PERSONAL ATTACKS AND NAMECALLING.

"Still waiting for that industry. Agriculture is obviously not it"

Horticulture (pre-Monsanto) is (or was) one of them.

""Unfortunately, patent law creates a world where winners innovate and losers litigate, instead of what we should have, one where winners innovate and losers just meekly go to the courthouse and file Chapter 11."

Actually,"

Actually, patent law creates a world where winners innovate and losers litigate, instead of what we should have, one where winners innovate and losers just meekly go to the courthouse and file Chapter 11.

"Without patent law, the copiers would just copy and drive the inventive companies into the courthouse to file chapter 11."

Not true.

"Ah yes. Well, I never said Red Hat was a manufacturing company."

Neither did I. Quit blowing smoke, stop trying to shift the goalposts, and just accept defeat already!

"I have even suggested that patents may not work or work as well for software."

They don't. And they don't work elsewhere, either, or we'd have been tribal hunters right up until the first patent law was enacted. Why, if patents are so essential to making innovation profitable, did anybody ever invent the wheel? Until you can explain the pre-patents invention of wheels, fire, and several other rather well-known devices, you should remain meekly quiet.

"How interesting. We are in a patent-rich world, and yet consumers end up driving when they want to"

Did they before 1928 or so? Perhaps they would have been doing so sooner without patents.

Any time you see an explosion of consumer uptake of some gadget roughly twenty years AFTER it was invented, or of commercial profits made, or of product diversity, it's a hint that the field was held back for that long by some goddamn patent or another.

"Further, all these automotive companies are only paying their legal staff a small fraction of their income, and more of that is for liability issues than intellectual property issues."

That's because fortunately car companies haven't been as patent focused as *ahem* certain other industries. In your ideal world, though, I'm sure they would have.

"As for you example about standards, oops, someone just got caught doing that. Guess what happened? Wrong."

NO. Not wrong. One particular instance had a happy ending. How many didn't?

Hint: why don't we have video jukeboxes and other nifty gadgets that can do with our DVDs what we can do with our CDs with WMP and an iPod?

Because all DVD technology has to be licensed by an industry-captured "licensing body", that's why. When standards become proprietary, as happened with DVD and nearly happened in that other case, it is a Bad Thing.

"Ah, but numerous studies have shown that this kind of protectionism is not a bad thing."

Industry-sponsored biased studies designed to reach a predetmined conclusion. Independent research has tended to indicate exactly the opposite: that like all protectionism, it's briefly good for the protected industry, it's bad for everyone else, and in the long run it's just plain bad.

"I know very little about DVDs."

Then you should not presume to criticize my analysis of the problems in that space.

"Patents are not copyrights. Learn the difference."

STOP INSULTING ME. STOP LYING ABOUT ME TO THE PUBLIC.

I am well aware of the difference. The point is that by using encryption on DVDs, coupled with the DMCA, they got a "patent-like" right snuck in through the back door. You can't legally make a product that decodes DVDs without a license that comes with fees and other strings attached -- exactly the same results as if DVDs had been patented, though achieved by a different actual mechanism.

"If something is "copyrighted," all a person has to do is create something different. Not that difficult. Far easier than trying to innovate around a patent."

Making a DVD jukebox should be easy and legal then, right? Wrong. The DMCA, supposedly a copyright law, is really a patent law, because it means any DVD-using tool, even one not already invented, is effectively "owned" by the DVD CCA organization. This is far more akin to the effects if the DVD format had been patented than it is akin to the effects of copyright law (you need the copyright holder's permission to distribute copies of a particular DVD, not to simply read and display the contents of any given random DVD which which you are presented) or trademark law ("Compact Disc Digital Audio" is trademarked, and the trademark is leveraged to keep products not compatible with the standard from bearing the logo, but it doesn't stop whole classes of CD-reading devices from even being offered for sale in the US).

"On the other hand, look at how much innovation there has been in pharmaceuticals, which numerous studies (oh dear, even studies cited by anti-IP advocates) agree benefit from intellectual property. In fact, we have more drugs, covering more diseases, because of intellectual property."

I doubt that this is actually true, but even if it is, you're measuring the wrong thing. a) Not all diseases are created equal. Some are rarer than others. Some are more lethal than others. b) A drug that about three people in the world can afford, for a disease that affects millions, might as well not exist.

Measure lives saved and accessibility of drugs to the general population, including the poor at home and abroad, and get back to me when (and only when!) you have solid numbers please.

"Well, thank goodness for Coke and Pepsi that their cost of innovation is"

irrelevant. We were discussing your erroneous hypothesis that a company that briefly has a lower price quickly captures 100% market share from its competitors.

"On the other hand, Coke has dropped their price, and Pepsi, which once had about equal share of the market, has steadily lost market share over the last couple of decades. If the current trend continues, Pepsi may well go the way of the dinosaur."

Thus proving my point. Pepsi has been losing market share quite slowly, and has plenty of time to lower its own price, change its marketing strategy, or otherwise take action to stem the losses. You presupposed that a company would be in trouble almost instantly once someone copied their product and sold it cheaper. That is a big fat lie.

Another example: Oracle started offering boxed copies of Red Hat Linux (rebranded of course) at half Red Hat's price. By your theory, Red Hat was doomed the instant Oracle did so.

Meanwhile, in the real world: RHT 12.82 +0.25 (1.99%) 7 Nov 4:00pm ET

Looks like Red Hat is doing fine, and showing modest gains, far from the catastrophe predicted by your theory.

"What is "non-creative"? Well, they had a chance to see how the product was made. They recognized errors the first company made while being inventive, and realized bandaids the first company made to make their product work."

To do this, they have to understand the products and processes, and then improve them. Looks innovative enough to me, considering that in the real world Company A's product is probably equally derivative of something else in turn.

Very few things are made from scratch in a single great effort at R&D. Drugs are about the only major remaining example. That is probably why the evidence against patents is weakest in that one area.

"Once the tooling is done, fixing problems that occur along the way is expensive. Most manufacturing companies will leave the fixes in until the next round of tooling and incorporate the improvements then. Depending on how developed the market is, new tooling for the first company could be three or four years after the start of production."

Irrelevant details. Stop muddying the waters.

""Strong words. But here in the real world, poaching potential sales is called "competition", not "theft". Price wars happen all the time and it's no disaster for innovation."

In the real world,"

In the real world, poaching potential sales is called "competition", not "theft". Price wars happen all the time and it's no disaster for innovation.

""This seems to be all too common. A company invents one thing, starts making and selling it, and expects that that will guarantee it an unending revenue stream, then thinks it's an "innovator"."

All the first company wants to do is make its investment back, plus a little profit."

The problem isn't what they want, it's how they want to get it. They apparently want to get it not by being competitive and serving the market, but by government fiat and a big fat corporate welfare cheque.

Well, too bad, so sad.

"The "unending revenue" is your words"

The "unending revenue" is your words. You said, earlier, that company A would spend about seven million bucks inventing product X, then simply sell product X, with no further R&D efforts, and expect to make this much in the first year, that much in the second, some other amount in the third, yet another in the fourth, and then a metric shitload in the fifth and every subsequent year.

It's pretty clear how to get from there to "unending revenue".

And, of course, this sort of uninnovative, rent-seeking, cheap-manufacturing, expensive-pricing crud is precisely what you get whenever protectionist policies exist around an industry. The history books are littered with the corpses of protectionist policies that ultimately did more harm than good. And none that didn't.

"and in the real world, the competitor comes up with an inventive competing product several years later"

Instead of only several months later.

Meanwhile, consumers are screwed with rusty chainsaws and no lubricant for several years.

And you claim that it isn't an "innovation tax".

""Your Company A invents something and then expects the world to stand still for five years until they have recouped their investments and turned a tidy profit."

Company A assumes that Company B, and Company C, will come up with their own invention."

Why should they? Reinventing the wheel is wasteful. A deadweight loss. Our society is more efficient if inventions once marketed are free for anyone to use.

Patents encourage (and often outright enforce) wheel-reinventing.

Patents throb with evil.

"In the meantime, Company A is developing the follow on product. Company A will continue to stay ahead of Company B and Company C because intellectual property will force"

This use of force is very troubling. Company A should have no right to use force. Only government should, and only when it has strong justifications. Never to ensure some corporation a steady stream of welfare at taxpayer (and worldwide consumer!) expense.

Company A should have to actually WORK to stay ahead of Company B and Company C. "Invention" should not be an automatic ticket to ride on a gravy train. Gravy should have to be earned by continued productive work.

"The world expects Company B and Company C to develop competitive products"

Then free them to do so. Allow them to base their products off pre-existing products. Forcing them to expensively reinvent the wheel just to get the second-comer's piece of the market share pie, with no first mover advantage and not even temporary exclusivity in the market, is doing precisely what you think you are avoiding.

Without patents, A still gets the first mover advantage and gets exclusivity until someone copies and tools and starts selling. That ought to suffice.

B, on the other hand, can take A's finished product as its starting point. If that's all they do, sell clones of A's product, they'll be market also-rans, with low margins and a small market share. On the other hand, if they modify and improve the design, using it merely as a jumping-off point, they are innovative, and if their improvements are compelling they may capture much more market share and even grow the overall market. They may also cannibalize some of A's sales, but a) they earned it, and b) A can respond in kind.

Apple's iPod copied the idea of the MP3 player but used it as a jumping-off point to generate a more compelling product, growing the overall market and capturing a lot of market share in an already crowded space. (They also leveraged DRM and iTunes integration, but I think the iPod would have been compelling regardless.)

""Consider RIM and NTP. RIM: true innovator, marketplace success, bullied out of three quarters of a billion dollars by NTP, and still successful. NTP: litigator, marketplace failure, extorted three quarters of a billion dollars from a successful rival, and still a failure."

Wrong."

NO.

WHAT HAVE I TOLD YOU, REPEATEDLY, ABOUT INSULTING ME IN PUBLIC?

DO YOU NEED YET ANOTHER REMEDIAL LESSON IN MANNERS? IT WILL BE A PUBLIC ONE, AND A HUMILIATING ONE.

STOP ATTACKING ME, OR ELSE.

RIM created an actual product and brought it to market. They might have been able to do an even better job without patent-assisted bullying being directed at them.

"NTP is a success"

That's a laugh.

Spoken like a true patent-lover.

""You underestimate the first-mover advantage of company A in this revised model. A will capture a persistent share of the market."

As has been shown in numerous studies, [calls me a liar]"

No, you're the liar.

Studies have repeatedly shown that there is a persistent first-mover advantage IF a company's product isn't shoddy and IF they make the right marketing moves. A company can indeed lose the advantage to a competitor if they underperform. That's called Darwin's law. It selects ruthlessly for the best companies and weeds out those that serve poorly. Just as things should be.

To free individuals, who have thoughts and feelings and hopes and dreams, from the tyranny of evolution, we have proxies, corporations, that are subjected to ruthless selection in our place. When we don't let the free market operate unimpeded to select out bad companies, and create an environment that fosters the growth of parasites like NTP, we find the burden of selection shifted back to ourselves. We find millions dying of easily treatable diseases because the drugs they need are priced out of their reach, among other nasty consequences.

Corporations don't have thoughts and feelings and hopes and dreams. They are not deserving of much in the way of rights or protections. They should be protected from outright cheating -- but copying is not cheating. It's fair game.

Corporations should have to sink or swim, without any government assistance.

"I did encourage you to modify my assumptions, and you did. However, B will invent, instead of just copying, and C will invent, instead of just copying"

They will REinvent, which is wasteful duplication of effort, when they could be inventing something completely new.

Your world, and all too often, the real world: A invents wheel. B invents square wheel, avoiding A's patent on round wheels.

Ideal world: A invents wheel. B invents car. A invents helicopter. B invents wormhole drive, or whatever.

"Then, the company that goes out of business will sell its intellectual property to one of the other two companies, or a new company, and competition will intensify again."

Nonsense. "Intellectual property" and competition are antithetical. More or less by definition.

""If A also makes marginal improvements, or if B does not, historical evidence shows that A can expect to retain the lion's share of the market."

How many examples do you have of this? I will take two examples of manufacturing companies that have done this and survived."

Every manufacturing company prior to the first patent law. Every company innovating in an area (geographic OR product-type-wise) not at that time subject to patents.

Coca-Cola manufactures a non-patented product (it employs trade secrecy). It has competition. It has divided the market roughly in half with that competition. No-name colas have taken a slice out of the pie in recent decades, leaving Coca-Cola and Pepsi to split the rest of it. The exact position of that split has varied over time but Coca-Cola has never become sufficiently unprofitable to be destroyed by it.

Illegal products aren't subject to patent protection, and there is plenty of innovation and manufacture of: * Illicit drugs * Banned weapons * Criminal enterprise "business methods" * Illicit or quasilegal software (e.g. filesharing)

Some of these are physically manufactured products. None are patent protected.

""Cars: lots of companies manufacture them and many do a better job of it, but Ford still has a big chunk of the US domestic market."

A rapidly decreasing chunk of the market, sadly enough."

Because shoddy products and slow/lacking innovation result in gradual loss of the first mover advantage. Ford can stem the tide by being more innovative, and also by copying useful innovations from its rivals instead of succumbing to "not invented here" syndrome.

Patents have the horrible consequence of more or less ENFORCING "not invented here" syndrome.

""PC-clone personal computers: lots of companies manufacture them but IBM still has a big chunk of the market."

I think you are a little behind the times."

NO.

YOU HAVE BEEN WARNED. NOW YOU WILL HAVE TO LEARN THAT IT IS NOT POLITE TO INSULT THEM TO THEIR FACE, AND PARTICULARLY NOT IN FRONT OF A PUBLIC AUDIENCE, YOU NINCOMPOOP. <-- How did you like it?

Insult me again, and you get another two tastes of your own medicine. Again, and it's an additional four, and so forth.

Still game?

"IBM has a ZERO share of the market."

Nonsense. They seem to have stopped supplying desktop towers, but they have a laptop division, and PC software division.

""IBM is an especially good example. IBM let its architecture be easily cloned, but IBM did not become unprofitable, nor find it necessary to eliminate their PC-producing division as unprofitable."

estimates were that IBM's share of the PC market had fallen to 5%."

Maybe, but that was not from being easily copied. It was from failing to innovate, and thus falling behind. They remained strong for years, despite having generally higher prices. To a significant extent, though, they became just plain unfashionable.

Note also that many of the other players in the PC market are big-name, long-standing ones (HP, Dell, &c.) rather than upstarts that copied them and then ate them alive.

Being earlier into the market is a big advantage.

""Indeed, the easy cloning and open architecture, unencumbered by patents, made it cheap and easy for lots to get into the field and for consumers to buy, growing the overall market and creating a thriving ecosystem. That ecosystem in turn produced huge successes elsewhere: Microsoft, consumer Internet providers, eventually Google, YouTube, and the rest. Dot-coms, the entire NASDAQ index, all of it built "on the back" of IBM, but IBM came out of it quite well by playing the free-market game with skill rather than by trying to cheat by going whining "No fair! He COPIED off me!" to the feds or whatever."

The computer industry has a very different business model that will not work"

Don't keep trotting out that tired old line of BS. Debunking it over and over again has become quite boring, you know.

Computers are very much like most products, including chemicals, in that there's parts and labor costs, complex machinery to assemble, high quality standards to adhere to (these days), and many other barriers. Despite which, no patents required. Chemical companies actually have an easier time -- their products are simple and all the innovation and expense is in the process back-end, where it's easier to maintain trade secrecy.

Only the pharmaceutical industry looks remotely like it might qualify as "so different other things won't work for it". And there I contend that the barrier to entry has been made too high -- Phase III trials are too expensive and the drug company is expected to foot the bill. If government did, contingent on promising-enough results from Phase I and II trials, and government also conducted the trials, with pharma patents eliminated:

a) the barrier to entry would be lowered, making the field more competitive and speeding drug discovery; more drugs would be for novel conditions or use novel mechanisms of action and less would be "me-too" drugs;

b) the costs of phase III trials would be spread over the tax base and, given progressive taxation, would fall primarily on the rich;

c) drugs would be accessible to poorer people, accessible sooner, and safer and more effective since the agency conducting the trials wouldn't be motivated to fudge the numbers in the drug company's favor.

Industry-conducted drug trials are not only expensive, they are also of poor effectiveness for their purpose. All too many incidents are coming to light of doctoring the books and putting dangerous drugs onto pharmacy shelves. The system is too expensive and doesn't work. The need for drug patents, if there is one, is yet another symptom (and adds to the "too expensive" part too). All of those symptoms could be eliminated by treating the root cause of the problem.

""IBM continues to innovate and to participate in the tech market."

IBM"

IBM continues to innovate and to participate in the tech market.

""By your theory, IBM should be dead now, its market share eaten alive by clone-makers back in the late 80s.

Why is it thriving, Lonnie?"

[Insult Deleted]"

No, you're the one who's been insulting.

"I have said a number of times that software does not appear to benefit uniformly from intellectual property."

IBM is, first and foremost, a hardware company.

Why is it thriving, Lonnie?

""Cheap, scaled-down prototypes are of course not the only ones you use, just the first ones. You tweak those, and when you think you're close, then you invest in bigger, higher-fidelity prototypes, and eventually in manufacturing an actual product line."

Thank you for teaching me my job."

Your employers really should have had higher standards.

"This is exactly what we do. However, we typically spend somewhere between $1 million and $2 million for full-sized prototypes"

"We" must be in the aerospace industry or something similar. About the only organizations that buy from companies whose prototypes are that expensive are governments and other very large and deep-pocketed institutions and businesses, such as hospitals, airlines, and universities.

This means:

a) your experiences won't be representative of most industries.

b) the market is so small that the first-mover advantage will be overwhelming there anyway

""Crops, not tractors. Lots of time, effort, and money got invested in cross-breeding and other R&D on crop varieties even though they could be easily copied. Your theory predicts that this field should have stagnated without IP."

I guess you have yet to hear of Monsanto and their patented crops."

I've heard of them. You have yet to explain why we weren't still eking out a living on the unmodified wild-types of all of our crop staples right up until Monsanto came along with its evil patents.

There was a ton of crop-variety innovation, with rampant copying, for thousands of years right up until Monsanto's patents started to put a stop to all that.

This despite the big investment in crop variety R&D: a farmer growing a new cross or breed on a plot of land risked everything if it didn't pan out, given how easily farmers have historically tended to be wiped out by any kind of crop failure or other mishap, or even by market forces driving down prices for long enough.

By your reckoning, no farmer would have dared try to innovate in a crop variety without the guarantee of a gold-ticket patent if the variety proved to be valuable.

By your reckoning, we'd still be hunter-gatherers living off wild plants and animals.

""Also that IBM's PCs being cloned should have killed IBM. Your theory is wrong. Time to face facts, Lonnie. The evidence does not bear out your viewpoint. It does support mine."

So sad the IBM decided it was no longer in their best interest to continue to make PCs"

They stopped making tower PCs. Last I checked there are still IBM-logoed laptops out there.

If your theory had been correct, clone-makers would have killed IBM, or at least killed off its PC division, by 1995. Why did that not happen, Lonnie?

Could it be because you're wrong? Or perhaps even because you're just plain lying through your teeth?

"Incidentally, IBM has been the patent winner for quite a long time now."

Interesting that when they allowed easy cloning, they were successful, and when they started patenting things left and right, they started having problems, hmm?

""Explain that, o defender of evil mercantile privilege!"

It took us several thousand years to develop any sort of basic technology. We implement intellectual property, and technology progresses faster in 100 years than it has in the entire recorded history of mankind, put together."

You eat a strange root, and a few days later your cold is gone. But it would have been anyway.

You have confused correlation with causation. Actually, the rapid advance of technology has resulted from three factors:

a) Technology naturally accelerates, because new technology can build on earlier technology, often synergistically. Read kurzweilai.net for more on this. b) Industrial revolutions, democracy, freer markets, strong property rights in physical property, and other things improved the lot of inventors. c) Sheer population growth. The human population of the planet has grown exponentially, so given a fixed fraction have what it takes to be inventive, the population of inventors has also grown exponentially, if more slowly. The size of the potential market has also grown exponentially, as has the wealth available to potentially fund R&D efforts.

Patents are neither necessary nor sufficient to explain accelerating technological advance.

None of Your Beeswax:

I have had enough of your insults, and your post is way too long.

IBM sold its personal computer business, including laptops, to Lenovo. This information is readily available in numerous locations on the internet.

http://www.laptopical.com/ibm-sells-to-lenovo.html

Incidentally, I know the difference between correlation and causation quite well. Indeed, that was one of my criticisms of the Bessen and Meurer paper on intellectual property. Bessen and Meurer were looking at correlation and not causation.

"I have had enough of your insults, and your post is way too long."

Pot. Kettle. You know the rest.

"IBM sold its personal computer business, including laptops, to Lenovo."

IBM spun off that division. Not quite the same thing. Also, IBM's PC division thrived for quite a long time after rampant copying and before doing so.

"Incidentally, I know the difference between correlation and causation quite well. Indeed, that was one of my criticisms of the Bessen and Meurer paper on intellectual property. Bessen and Meurer were looking at correlation and not causation."

Just consider the timeline. When poor innovation follows introduction or strengthening of IP laws, with thriving innovation preceeding it, it's clear which caused which, unless you think they had access to a time machine.

Soon enough, if certain bad guys win, you'll get to watch this process unfold again when the fashion industry starts monopolizing. Watch its present innovation and diversity plummet while the current big-name incumbents get rich and seriously outlast their predecessors, their success no longer hostage to the vagaries of fashion! Much to the detriment of consumers, of course.

Beeswax:

I believe you have the highest level of unsupported BS of anyone I have met in a long time. In order to keep you from muddying the waters, I am going to focus on one thing you said.

IBM spun off that division. Not quite the same thing.

I point you to this 8 December 2004 article on MSNBC:

NEW YORK - Chinese computer maker Lenovo Group said Wednesday it will take over IBM's personal computer business, creating the world's third-largest PC maker in a $1.75 billion deal that announces China's ambitions to become a key player in the global industry.

The deal one of the biggest foreign acquisitions ever by a Chinese company was expected to quadruple sales of Lenovo, already Asia's biggest computer maker, the companies said.

"Spun off?" Is that like they sold their PC business to Lenovo for $1.75 billion? I guess I can see the difference between my comment, that they sold their PC business, and your comment that it was "spun-off." No wonder we are unable to communicate; we are using two different languages. Incidentally, my native language is English. What is yours?

"I believe you have the highest level of unsupported BS of anyone I have met in a long time."

NO. Everything that I have written has been 100% true. The only one writing loads of BS around here uses the name Lonnie E. Holder on his posts.

Stop lying about me in public or else.

"In order to keep you from muddying the waters"

I have done no such thing, you liar.

""Spun off?" Is that like they sold their PC business to Lenovo for $1.75 billion?"

Yes, spun off. Who acquired it is irrelevant. IBM still divested it.

"No wonder we are unable to communicate; we are using two different languages."

Yes. Interesting that yours considers a company not to have divested themselves of something if that something is acquired by another company rather than being stand-alone.