Thinking about patent woes

I’m currently in Brussels at the Charles River Associates conference on competition policy. The session I am participating in is about patent policy and its interaction with antitrust law.

As it happened, I read a relevant book on the subject by Alex Tabarrok. It is a short eBook, Launching the Innovation Renaissance. It deals with a number of things including the US education system and also its poor immigration rules and is worth reading for that alone. It is also written in a very breezy style reminiscent of Dan Brown; extremely short chapters (1-2 pages) that beg you to read on. I finished it in an hour. For $2.99 it is not only worth you purchase but also your reading attention.

The book starts off with the patent system and the myriad of issues associated with it. Not much of it is new but it is packaged neatly and it also cites and uses the most recent research into the impact of the patent system — particularly, on follow-on research — including papers on the Oncomouse and on rose patents. The system looks dire and the possible horrible consequences of that were highlighted by speakers at today’s conference.

But the Tabarrok book did cause me to wonder about that a little — partly because of how clearly it was written. For instance, he writes that patents simultaneously do not appear to stimulate innovation or are required for innovators to earn a rate of return but simultaneously can cause follow-on research to not be funded because they cannot guarantee a minimum rate of return due to potential hold-up by patent-holders? Surely, rate of return requirements are necessary for both types of research or neither but it seems sometimes that parties on either side of the debate do not apply assumptions consistently.

The book also highlights studies that have illuminated the costs of patenting. It is much harder to identify the benefits. This is because the counterfactual — what happens if there was literally no patent system — is not one we can observe. We can compare countries in their differences on patent strength but then we have to consider innovations that are country specific in their commercialisation making those hard to compare too. Moreover, nothing is said about the issue of disclosure — that is, the patent system, in more ways than one, creates an environment that makes disclosure more likely and can thus direct innovators to avoid duplicative activities as well as build upon one another. I would worry if we threw out with the patent system, disclosure opportunities.

Tabarrok also claimed that most patent cases where about independent inventions. I wondered about whether that was the case. After all, do we think Apple is an example of an independent innovator? There were a few points like this where a little more detail would have helped.

Which brings me to my talk for today. It was set in the context of others discussing the patent troubles facing the mobile industry. It is said that there are 200,000 patents that might potentially hold-up the industry’s progress; held by large players as non practicing entities alike. I started off with the observation that despite this potential time-bomb ticking, I can’t think of another industry that has had more innovation in the last five years than the mobile industry. Indeed, it is arguable that the rate of innovation has maxed out.

I speculate in my talk that the industry players know and believe this and much of what we see going on is posturing over the division of the broader rents. That often innovators with patents need to limit their ability to use monopoly power in order to ensure an industry grows that this is playing a role here. I wondered what role of competition authorities might have in that environment and whether they could help. I do not have answers, by the way, I just asked the sticky questions over whether the dire consequences that seem legally possible might actually occur. Thinking through this left me more optimistic than Tabarrok’s conclusions did. That said, the book spurred me to dig a little deeper.