The New York Times goes after patent trolls in a long review in the Sunday paper link here. Its author, David Segal, thinks he has found the worst offender, Erich Spangenberg, whose company, IPNav, even has a classy website, link here on which it claims to have "Monetized to date: $610,549,103" and makes its sales pitch to existing and prospective clients.

It is at the top of the list of patent trolls, ranked according to the number of defendants added to their suits from 2008-2012. The total number of patent infringement suits (in litigation?) has jumped from 2304 in 2009 to 4731 in 2012. One estimate of the costs of these suits was 29 billion in 2011. Only $6 billion went to inventors, with the balance going to lawyers and the trolls themselves as expenses and profits.

The article has a lot of details on how IPNAV operates, some of which have gotten it in trouble with the law, but so far it has escaped using lots of money and legal talent. But the bottom line is that it is a huge tax on innovation and on consumers with no redeeming features. The question is how long the U.S. or the patent system survives.

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

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

Trademark

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

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

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

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

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

Patent

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

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

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

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

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

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

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

Copyright

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

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

See also:

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

Trade Secret

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

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

[Mises; SK]

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

Examples of Outrageous Patents and Judgments

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

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

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

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

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

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

[StephanKinsella.com cross-post]

Arlene Weintraub writes that the drug companies are lobbying to get expanded protection for new generic biologic drugs link here.

First a definition. According to the Sino-American Biomedical and Pharmaceutical Professionals Association (SABPA) in a 2006 pdf, biologics are protein or carbohydrate based, extracted from a living entity, posessing a complex physicochemical structure, and are defined by the manufacturing process link here. In 2005, it reports the five leading drugs sold under Part B of Medicare were biologics, valued at more than $4 billion.

In what follows, I am uncertain that I have matters right, but here goes. According to SABPA, biologics cannot be regulated as generics since they can't be shown to be chemically identical to previous approved drugs--the chemicals may be the same, but their structure differs. They must therefore have efficacy and safety data submitted separately, an expensive and time-consuming process. This is the Pharmas justification for asking that a patent's life be extended.

The SABPA definition is notable in that it seems to open the way for defining and patenting such a drug according to one or more of these terms, an almost infinite set of possible patents. The big Pharmas mouths must be watering.

The issue according to Weintraub is whether TEVA and other generic makers, can limit the patent extension beyond the initial monopoly or whether the extension is granted for 10 or more years as the big Pharmas would like. "Right now, the U.S. Food & Drug Administration has no mechanism for reviewing or approving these complex medicines. But several bills introduced this year seek to clear the way and Teva Pharmaceuticals, the world's largest generic-drug manufacturer, is working like mad to make it happen."

Mike Masnick fails to see any justification for a longer patent. He has written on the subject several times, most recently here link here.

Given the amounts of money and the importance of controlling health care costs, we are sure to hear more on this.

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

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

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

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

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

[Mises cross-post; SK cross-post]

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

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

***

Mr. Cooper writes:

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

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

Mr. Cooper writes,

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

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

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

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

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

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

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

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

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

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

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

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

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

The two of us signed a statement from a number of economists urging caution about the stimulus package now before Congress. The statement was a modest one - here we want to elaborate our own views.

Amidst all the op-ed pieces and argument in Congress, the debate over stimulus spending is also a hidden fight over who gets the money. The great problem with government spending is that everybody wants a piece of the pie: each party wants make sure that its constituents benefit. So, for example, the Republicans favor cuts in tax rates because their rich constituents pay more in taxes, while the Democrats favor spending and lump sum tax rebates, because that gives money to their constituents. There is, of course, a lot of dissembling on both sides over this as the economic crisis becomes an opportunity to purchase future votes at the expenses of the public purse.

Paying off voters aside, is there a case for a stimulus package? People are worried about the future and are sensibly reducing their spending. Does this mean that the government should step in and do the spending for them? Put that way, the idea seems like a non-starter: if we are poorer, so is our government which will be able to collect fewer, not more taxes. On the other hand, government borrowing is cheap right now, and labor costs relatively low. Isn't this the right time for the government to spend? Put that way stimulus spending seems like a good idea: borrow and spend when costs are low and you get more bang for your buck. However, if we accept this logic, then we reach an interesting conclusion - the additional spending now should be offset by less spending in the future. Sadly none of the plans by either party propose anything of the sort. The plan is simply to spend more money - how that will be paid for in future tax increases or reductions in government services is not a topic of discussion.

A second key issue is whether the government should spend the money itself, or reduce taxes in hopes of inducing people to spend their money themselves. While the latter in principle seems the better approach, it does little good if the people who receive the money don't want to spend it. Giving money to people who are unemployed or otherwise struggling is likely to lead to more consumption spending than giving it to better off people who are concerned about their future and will save it. The Democratic proposal is to provide lump sum tax rebates. On the one hand this makes sure that the poor and struggling receive some money; on the other it does nothing to reduce the drag of the tax system on the private sector and on the cost of labor in particular. The Republican counterproposal is to cut the payroll tax. They rightly point out that this is a regressive tax, so cutting it will have substantial benefit for the relatively poorly paid, and that it will reduce the cost of hiring, making it easier for the private sector to get back to business. They do not point out that the payroll tax paid on the business side is not regressive, and in the short-run during the brief period of suspension - the benefit will go entirely to the business owners, who are few in number and not so likely to spend it. How about reducing just the part of the payroll tax paid by the worker? This tax is even more regressive, and will also reduce the hiring distortion. It is clear why the Republicans do not suggest this - it brings fewer benefits to their constituents. Presumably the Democrats are against it because it is expensive and interferes with their pet projects.

Should we be concerned that cutting taxes will result in less consumption than direct government spending? The essence of the question is whether we need more private savings or not. A decade of poor investments in housing and an over-valuation of assets driven by irresponsible lending has resulted in the inability of a large number of American families to cope with their debt. There are only a few ways out: default on the debt, consume less, or work and earn more. So far we have had success in defaulting on debt - with the result that financial markets have collapsed. Currently we are starting to consume less. It remains to start working more. Cutting taxes on labor income, especially for incomes in the lower brackets, cannot possibly reduce employment and it will certainly increase it. What is more important is to note that, in circumstances like these and for those households having a hard time paying their mortgages, if some of the extra income generated by a reduction in tax rate goes toward saving (keeping up with mortgage payments, paying back debt on credit cards and so on) this will be an extremely good thing for the country (including its banking system) and not a bad one. Failure to appreciate this simple point is an important conceptual mistake behind the design of the stimulus plan.

Going through the original Obama proposal of January 15, we see a random collection of proposed spending. Some are sensible. There is a proposal to spend $102 billion to extend unemployment benefits, subsidize health care for the unemployed and increase the food stamp program. The cost is modest, the benefit targeted to people who are genuinely in need, and because the proposal is so clearly tied to an economic crisis over which the beneficiaries have little control, involves little moral hazard.

Also proposed are numerous spending programs on infrastructure. Some of these, including the $146 billion proposed for transportation, improving the electrical grid, and health care infrastructure, are probably meritorious. On the other hand, the problem with these kinds of programs is that it takes time to spend money on these programs...and so by the time the work really gets under way the crisis will be over: we will have had the illusion of having done something to help, while we did not do much. Other parts of the program seem to be simple pork-barrel spending for the Democrat's constituents: 6 billion for internet access for rural areas (why do we need to subsidize rural areas?); 16 billion to repair public housing and make it more energy efficient; and 6 billion to weatherize modest homes.

The broadband access spending proposal highlights the key deficiency of having the government involved in "innovation." As a give-a-way to a few politically well connected internet service providers who have been slow to build up their wireless networks, Congress and the Executive are trying to delay the requirement that over-the-air TV switch to HD. This, of course, will slow the introduction of wireless infrastructure by those providers who have innovated and are building out their networks. More to the point - why do we still have over-the-air TV at all? This benefits a handful of people while tying up massive amounts of bandwidth that would be far more useful for internet service or other wireless communication. The fact that the same bandwidth used by a TV station is worth ten times as much if used for a cell phone network shows the enormous distortion involved. Rather than spending billions building what will no doubt turn out to be relatively useless internet access, why not free the bandwidth and let the innovators provide us with really high speed internet access? This would have the additional benefit that there would be widespread competition over the "last mile" putting to rest once and for all any need for "internet neutrality" laws.

This latter point perhaps needs elaboration. If we are to get out of the current crisis we must come up with new ideas and ways of doing things. The stimulus bill is full of rhetoric about innovation. Predicting the next big thing is no easier for us than for Congress - but it is at least possible to make some sensible conjectures. The last big thing was the wired internet. It looks like the next big thing may well be the wireless internet. We already see people browsing the web on their cell phones in restaurants. The next generation of wireless technology promises us the mobile always on personal high bandwidth internet. All the information in the world at the tip of our fingers everywhere all the time. Who knows what great new businesses and entertainment will be built on the back of such an infrastructure? What is blocking this dream? Is it the fact that the government hasn't dumped $6 billion dollars into rural internet access? No. The government is itself the obstacle standing in the way. From foolishly allowing obsolete television stations to cling to over-the-air bandwidth; by regulating the use of radio devices on airplanes; by delaying new technologies such as HDTV (since when do we promote innovation by delaying it?); by over-regulating the spectrum - as in the recent set of roadblocks created over the use of "white-space," to the fact that so many technologies are tied up in obscure patents that should never have been issued...The government here is the problem, not the solution.

Turning back to the stimulus proposals, the big joker is the 91 billion in aid to the states. This is a good way to get money spent right away on useful things. Unfortunately the states have been less than provident in budgeting, and if we do this we will wind up like Argentina or Brazil where the states spend money, but the Federal government picks up the tab. Needless to say this makes it impossible to balance a budget in those countries and has led to enormous long term economic problems. If we believe that the states are "too big to fail," then at the very least the Federal government needs to behave like the old bad IMF - tying any aid to reforms that will get their fiscal house in order.

One of the most dangerous, and revealing, aspects of the proposed bill is the provision to "buy American." This is sold as a "patriotic" measure, but it is quite the opposite: buying only from each other makes us all worse off not better off. Tragically, if we start becoming protectionist the rest of the world will happily follow us - and we may truly have a decade long depression. The "buy American" provision also reveals the stimulus bill for what it is: we are not spending the $800 billion because we need to make needed investments in infrastructure but because we want to give away public money to politically favored businesses. If the projects are there because we need these investments and want to take advantage of low borrowing rates and low labor costs, then the government should be looking to get good value for its money - which doesn't mean buying from American firms if they do not offer the best value. Bailing out badly run steel firms by borrowing against future taxes is not going to move us forward.

Finally - how can we discuss innovating our way out of trouble without speaking of patents? A long collection of articles in Sunday's NYTs speaks of the need for innovation. Not one of these articles mentions patent reform. We now live in a world in which patents do not serve to encourage innovation. Rather rent-seekers look around to see who has the most successful new businesses and then use patents to blackmail them. The software industry - and the internet - have been one of the great engines of recent growth. Yes Bill Gates said: "If people had understood how patents would be granted when most of today's ideas were invented, and had taken out patents, the industry would be at a complete standstill today." He was right - industry is now at a standstill and there can be no new direction for American innovation without a radical patent reform. Let us roll back patent protection in software; enforce the existing standard of non-obviousness for inventions; and eliminate the kidnapping of ideas for ransom by providing a proper independent invention defense. These reforms - that would not cost a penny of public money - would do far more to build the foundation for sustained economic growth than the random assortment of stimulus spending currently being proposed in Congress.

Ultimately the current crisis is driven by a failure of confidence in institutions. Bankers have absconded with peoples' life savings; investment brokers have perhaps accomplished the same thing legally. Sadly, while trust is quickly broken it takes time to restore. One of the few institutions in which people still have confidence is the Federal government - so now is not the right time to talk about reducing its role in the economy. Unfortunately, the current stimulus package appears to be a compendium of the worst form of government misbehavior: pork barrel spending and a large increase in our future debt, without almost any tax relief for working families. While this may generate some popular enthusiasm in the short run, it may have dire consequences shortly after: not in the famous long run when we are no longer around, but a year or two from now. If the Federal government is the only remaining institution that draws public confidence, it needs to behave well enough that this confidence is sustained in the long run.

It is heartening to find more and more critics of our intellectual property regime, partly as a result of growing knowledge but more importantly, the growing critical reaction to the extreme excesses of the application of the law. A new voice for me is that of Dean Baker, co-director of the Center for Economic and Policy Research in Washington, DC. whose book, THE CONSERVATIVE NANNY STATE; How the Wealthy Use the Government to Stay Rich and Get Richer, is available for download on line link here under a Creative Commons license. The book is about much more than IP, as the subtitle indicates, but this review focuses on the IP issues Baker covers. He calls the chapter, "Bill Gates Welfare Mom: How Government Patent and Copyright Monopolies Enrich the Rich and Distort the Economy".

He begins by examining the richest man in the world, Bill Gates, and Microsoft, noting that it was not Gates hard work or brilliance, or the superiority of his software, but his government provided monopoly based on IP law that made him today's Croesus.

The heart of Baker's argument is that the same situation applies to patent protection in the pharmaceutical industry, and copyright protection in the entertainment industry. Vast segments of the economy are dependent on government-enforced monopolies for their profitability and survival. "In the case of prescription drugs, patent monopolies raise the average price of protected drugs by more than 200 percent, and in some cases by as much as 5,000 percent." "In the case of copyright protection, items like software and recorded music and movies that would otherwise be available at zero cost over the Internet, can instead be sold for hundreds of dollars. Clearly these forms of protection are substantial interventions in the economy."

He goes on, "The government is not obligated to award patent and copyright protection; it only makes sense if these are the best ways to promote innovation and creativity." "Copyright and patent protection support a $220 billion a year prescription drug industry, a $25 billion medical supply industry, a $12 billion recorded music industry, a $25 billion movie industry, and a $12 billion textbook industry. According to the International Intellectual Property Alliance, industries that rely heavily on copyright and patent protection accounted for $630 billion of value added in 2002, almost 6 percent of the size of the economy."

Baker's more original argument is that IP does provide an incentive for innovation as the constitution requires, but that there are less costly ways of doing so. He does so in a section titled "Efficient Mechanisms for Supporting Innovation and Creative Work".

He opens with an example, that "patent-protected brand drugs sell for more than three times the price of generic drugs that sell in a free market. This means that the country could save approximately $140 billion a year on its $220 billion annual bill for prescription drugs if the government did not provide patent protection and drugs were instead sold in a competitive market." The country could save much of that, if the research were carried on by the government, as in fact much of it already is (though to the gain of IP owner).

Baker next turns to copyright and singles out the textbook racket for close attention, arguing that revised texts are constantly being marketed with little real change in substance and at great cost. Again he would turn to the government to fund standard texts, but would allow copyrighted versions as well, which would have to find their place in a freely competitive market.

For the broader class of copyrighted material, Baker suggests a voucher system in which individuals would be given a set value of vouchers that he could credit to one or more artists. They in turn would put their creations on the internet, making them free to download. If the artist wants to copyright his work and sell it at whatever the market will bear, he could alternatively do that.

Baker ends by noting that these may not be the best alternatives to patents and copyrights, but that alternatives need to be explored.

The rest of Baker's book is ideological and will put off any who are not self identified progressives or liberals. But his basic argument is that conservatives have framed the issues in terms that they would keep the government out of much of the economy but that this is a lie. For Baker, the issue is that the government intervenes for the rich to the cost of for everyone else.

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

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

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

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

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

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

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

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

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

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

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

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

***

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

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

Update 2:

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

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

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

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

Jesus, this is pure evil.

(Cross-posted at Mises Blog)