IPR v Innovation?

When your local newspaper devotes a full page to how patents are now preventing, rather than promoting innovation, you know something is up.

Sure, it’s the middle of August and everyone is on holiday, but there is a financial meltdown going on, so no lack of potential copy.

But they are not the only ones. The Economist’s blogger on US democracy cries out how the broken patent system is preventing economic growth, the Guardian reports how app developers no longer want to work in the US because of the patent system preventing their innovation and developments.

Even Google’s Chief Legal Officer feels the winds of change, and lashes out in public at its competitors’ abuse of patents in order to stop innovation.

Are they right? And if so, where has it gone wrong?

Don’t forget, IPRs were designed to promote and foster innovation.

Not, as some want you to believe, to protect investment in R&D. That’s just rubbish. No government or patent office should step in to select the particular invention that needs its investment protected because it qualifies with certain legal requirements. That’s what we have markets for.

People will invest in new products and research into new products because there is a market, not because there is an IP right protecting parts of the invention.

IPRs exist, because it was generally believed that protecting certain investments above and beyond normal market practices, would strengthen innovation. Unfortunately, that is now often translated as “ever stronger IP rights means ever more innovation” – a dogmatic mantra, without any empirical support. If anything, empirical evidence, such as open software, demonstrates otherwise.

But this is only part of the explanation.

Two other elements explain why the current IP system is massively overshooting, and is currently preventing innovation.

The first is that IP rights also apply to the distribution part of an invention or creation. IP rights are, in essence, monopolies. You get an exclusive right. But the exclusive right applies to most aspects of distribution, and is transferable. And that is just stupid.

Distribution is one of the oldest economic activities there is. It needs competition – badly.

Granting a monopoly on the distribution of certain products, because they comply with (fairly random) criteria of inventiveness or creativity will only create inefficiencies and increase prices. Cue the music industry before Napster, pharmaceuticals, etc.

The solution is actually fairly simple: ban exclusive licenses or exclusive distribution rights. How? By stating that they are anti-competitive, and a breach of competition law.

Keep the protection of the actual invention, but ensure that anyone can distribute, as long as they pay the royalty, which must be set publicly, and without discrimination.

The second reason why the current IP system is overshooting, is Information Technology and software.

As I have written before, more and more products and services are software based, become software, or have software as their main added value.

But unfortunately, patent offices don’t understand software. They seem to think that simple improvements, such as backing up a file, or improving a process from two clicks to one click, are patentable inventions.

This shows a staggering ignorance on how innovation in software actually occurs.

But it also lowers the threshold, and makes it possible to obtain a monopoly on any computer function that didn’t exist in the same way before.

By doing that, the patent offices effectively hand existing businesses (and patent trolls) the power to levy a private tax on any potential competitor who might threaten their dominance in a given market, as long as they apply for sufficient patents.

Should we abolish software patents? No, we just have to make it a lot harder to obtain them, by applying a real “inventive step” or “non-obvious” test, and by limiting them to the specific way in which the invention operates.

Copyright? I’ll deal with that in another series of blogs – just one question: how does protection after the life of the creator enhance creativity?

Finally, it would be nice if essential players like the EU commission, when they publish about IPRs, don’t make the mistake of simply copying statements of lobbyists for established (old) businesses, in claiming that “IPRs are like other property”. They are not – IPRs are limited exclusive rights for a specific purpose.  If you don’t get your basic facts right, how can you have a proper policy?

Luckily, the debate seems to have started on the public forum, where it belongs.



2 thoughts on “IPR v Innovation?

  1. I took a different tack, but with the same conclusions: see http://pleliaert.blogspot.com/2011/08/end-of-intellectual-property-is-nigh.html. I invite everyone to also read Lawrence Lessig’s “Free Culture” which abounds in examples of how ideas and innovations may be shared to everyone’s benefit – including their creators’ !

    One observation, however, relating to the statement that “people will invest in new products (…) because there is a market, not because there is an IP right protecting parts of the invention”. I’m an avid follower of the BBC programme Dragon’s Den (currently on Sundays, 9-10pm, BBC2) where it becomes very clear that the ‘dragons’ will ONLY invest in a new product or concept ON CONDITION that it has proper legal protection, read IPR.

    Of course, one must perhaps distinguish between the external investor (buying into the equity of the company, and wanting to have a claim on some sort of assets in return, as insurance) and the business managers making decisions on how to utilise i.e. invest their available funds/budgets (which should indeed be based primarily on market potential).

  2. as it happens, the Economist published the following article on “IPR: Inventive Wars” (http://www.economist.com/node/21526385?fsrc=nlw|mgt|08-24-11|management_thinking) about how companies buy up patents, and “amassing in the process huge arsenals of patents” that serve to fend off potential law suits from competitors – instead of spending those funds on engineers working on innovation.

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