Against Monopoly

defending the right to innovate

Monopoly corrupts. Absolute monopoly corrupts absolutely.

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Nokia's infringement suit against Apple illustrates need to scrap US patent system

From a post on Jurist:

Nokia's infringement suit against Apple illustrates need to scrap US patent system

Stephan Kinsella [General Counsel for Applied Optoelectronics and Editor of Libertarian Papers]: "A recent lawsuit filed by Nokia against Apple alleges that the iPhone infringes 10 of Nokia's patents. Nokia is probably "seeking between $200 and $400 million in damages from Apple," which JURIST characterizes as "a relatively low amount to seek from a company that expects revenues...of over $11 billion this year." It doesn't seem trivial to me, given that $400 million is a good chunk - say, 5 to 10% or so - of Apple's profits. And Nokia's is not the only lawsuit Apple faces. Half a billion here, half a billion there, and pretty soon you're talking real money. For other examples, see here.

This case is a good example of the waste caused by the patent system. The common justification for IP is that it increases innovation and overal societal wealth (see my article "There's No Such Thing as a Free Patent"). But study after study concludes otherwise (see my article "The Case Against IP: A Concise Guide," and my post "Yet Another Study Finds Patents Do Not Encourage Innovation"). Is this surprising? After all, the patent system undeniably imposes enormous costs on society - companies spend millions of dollars on patent attorneys' fees and salaries, patent filing fees, licensing fees, litigation fees, and so on. Is the value of the extra innovation that patent law stimulates greater than all these costs? Nobody knows for sure, but the various studies almost universally conclude no. Some studies even conclude that the patent system decreases overall innovation, meaning that that we are paying a huge cost just to have innovation impeded. Thus, as noted by Mike Masnick, "if you build anything even remotely innovative these days, you're going to get sued for patent infringement, probably multiple times. It's become a massive tax on innovation, rather than a lever for innovation."

Many patent lawyers and IP advocates begrudgingly admit that the system is broken, or at least needs significant improvement. As a senior partner in the patent department of a major national law firm wrote me:

Stephan, Your letter responding to Joe Hosteny's comments on Patent Trolls nicely states what I came to realize several years ago, namely, it is unclear that the US Patent System, as currently implemented, necessarily benefits society as a whole. Certainly, it has benefited [Hosteny] and his [partners] and several of their prominent clients, and has put Marshall, Texas on the map; but you really have to wonder if the "tax" placed on industry by the System (and its use of juries or lay judges to make the call on often highly complex technical issues that the parties' technical experts cannot agree on) is really worth it. Of course, anyone can point to a few start-up companies that, arguably, owe their successes to their patent portfolios; but over the last 35 years, I have observed what would appear to be an ever increasing number of meritless patents, issued by an understaffed and talent-challenged PTO examining group, being used to extract tribute from whole industries. I have had this discussion with a number of clients, including Asian clients, who have been forced to accept our Patent System and the "taxes" it imposes on them as the cost of doing business in the USA.
But I disagree that the patent system is broken, or malfunctioning at all. It benefits certain people and companies, as all taxes and regulations do. The beneficiaries of this government program defend it with various forms of propaganda. For example, they say that is a major cause of innovation and wealth - indeed, that it is necessary for innovation. But as noted above, there is no proof that patent systems generate net wealth. Another tactic is to call patent a property right - in particular an "intellectual property right." But calling it a property right does not make it so. In fact, as I have argued extensively - from the perspective of someone who is both as a practicing patent attorney familiar with the system and a libertarian who is a strong advocate of private property rights - patent rights are not genuine property rights. Patents are artificial privileges granted by the state that actually undermine private property rights. A patent is a government grant that gives the patent holder the right to tell others how they can use their own property, by vetoing certain uses. They can use this veto right to extort ransom payments, politely called licensing royalties today.

IP advocates often say that infringers "steal" ideas from the originators, to bolster their characterization of ideas and patterns as property. In fact, in the dispute at hand, as reported here, "Nokia said Apple has refused to pay for use of intellectual property developed by Nokia that lets handsets connect to third-generation, or 3G, wireless networks, as well as to wireless local area networks. 'Apple is attempting to get a free ride on the back of Nokia's innovation,' Ilkka Rahnasto, Nokia vice-president for legal and intellectual property, said in the statement." In other words, Nokia is trying to make it look like Apple copied Nokia's patented inventions, so that it looks more like a thief. But in a patent infringement lawsuit, the patentee does not need to prove copying. In fact, the infringer could have independently invented the technology, totally unaware of the patentee's invention, and still be liable. While Nokia here implies Apple is getting a "free ride" by using IP "developed by Nokia," you can bet that they will happily accept a win in court over Apple even if Apple is shown to have independently invented the technology.

And what is wrong with copying, anyway? This is how society and technolgy advances: by emulation, by learning. The free market thrives on competition and cooperation, and also on emulation and imitation. Every stage of technology is built on the body of knowledge developed over the centuries. Emulation and the acquisition of knowledge play a key role - are essential to - society and economy. Nokia's own technology was not developed in vacuo. There is nothing wrong with imitation. It is part of the market. It is essential to progress. It is no more theft than learning is. In fact, IP can be a barrier to learning, and even lead to censorship.

So, no, the patent system should not be reformed. It should be abolished, for the sake of freedom, private property rights and prosperity.

For further elaboration of the ideas expressed in this post, see my monograph Against Intellectual Property, my article "The Case Against IP: A Concise Guide," and other material on my website."

Update: see Intel Will Pay $1.25 Billion to Settle Disputes With Rival, reporting: "Ending the computer industry's most bitter legal war, the chip maker Intel agreed on Thursday to pay a rival, Advanced Micro Devices, $1.25 billion to settle antitrust and patent disputes."

$1.25 billion in wealth transferred, and untold hundreds of millions spent on litigation, patent acquisition, losses due to strategic adjustments in response to antitrust and patent law ... Yet another example of how the central state's artificial legislative patent and antitrust schemes do nothing but destroy and waste wealth. Well, not only that--they also enrich certain classes who parasitically benefit from the system, e.g. patent lawyers, litigators, and large companies.


The "shoulders of giants" argument is always refuted with hyperbolic rhetoric about theft, IP's importance and how were going to KILL innovation if they don't have these monopolies/taxes to promote something that the free market already provides ample incentive to produce. It's obviously an argument that works for those that benefit from the successful departure from rationalistic laws.

I like to ask just how much should every company that uses computers for dynamic inventory tracking (thats every retailer still in business today) owe Wal-Mart? They seem to have somehow survived without these protections. These are the "process" that made them larger than most of the governments of the world. But JUST IMAGINE how much BETTER they would have done if they HAD patented and extorted K-Mart and Target out of billions every year.. Think of the benefit to society!! We wouldn't have to think about where we wanted to shop!

It actually seems that it's the FAILED companies that were unable to establish market presence that we see on the docket representing "the little guy". The IP patent proponents looooove to point to the little guy!! So IP acts as a bail out of failed companies? Wait.. what about the patents that cover entire industries? When patenting a procedure that gives one company exclusive rule over an entire industry (like nobles of the dark ages), what does that company owe to society in the form of representation?

Reality, the vast majority of litigable patents are held by the Wal-Mart's of the world, increasingly held by lawyers that literally contribute NOTHING to society and MOST innovators are harmed by the taxation without representation that has become the patent industry.

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