In September 2011, flawed research from a handful of Boston University professors made headlines with several highly popular news organizations claiming that patent owners were somehow responsible for a net loss of billions of dollars in wealth from corporate America. Joff Wild at IAM Magazine accurately predicted that the research would be well received and widespread, despite the fact that the authors’ ultimate point is that a given company’s stock price decreased after patent lawsuits were announced. Sadly, Joff was absolutely right.
Cato Institute’s Regulation cover story this month is the very same Bessen, Ford, Meurer paper, and Reason magazine’s science correspondent Ronald Bailey reported the findings on to his audience (just as Joff predicted) without criticism. This cynical view of our patent system gains traction–in part–because it carries a simple message: company A, who only wants to offer services and things for the public to consume is being blocked, harassed or halted by entity B, who only wants to take money. This message oozes from between the lines of so many articles and op-eds like the stench of garbage logic covered up by flowery prose.
Consider Bailey’s selection of quotes from the Bessen paper, criticizing companies “that buy up dubious ‘vaguely worded patents’ that can be interpreted as covering established technologies. They then ‘use them opportunistically to extract licensing fees from the real innovators.’” (emphasis added). Bailey’s not alone, mind you. Author Glenn Fleishmann, writing about a patent dispute involving camera straps commented that “In the patent-troll universe, very little of value is created. An idea is turned into paperwork not stuff, and the inventor may have never had an intent to make anything of worth, either.”
Of course, anyone with even basic knowledge of patents knows why both statements are horrifically flawed. “Vaguely worded patents” generally do not exist, except when patent examiners fail in their job (to ensure that patents particularly point out and distinctly claim inventions) as required by federal law. Further, while a patent may be difficult to understand, that alone does not mean that it’s “vague.” Bessen’s mention of “established technologies” and “real innovators” is an allusion to the fact that inventors and patent owners often are not the first, nor the most successful, to commercialize technology they created. Finally, Fleishmann’s ridiculous claim that patent enforcement fails to create value undermines and insults the whole point of acquiring and licensing patents: to allow technology creators to share in the wealth created from commercialization of an invention!
What cynics want the reader to forget is the fact that company A is actively engaged in commerce. Generally speaking, companies do not market new products for the sole benevolent purpose of helping people. True, a public benefit may result from this process, but the purpose of establishing a business is to make a profit for the business owners. Value is created when the inventor solidifies patent rights in the invention. Appropriation of the invention by others simply confirms the existence of value. Even prospective licensing confirms the suspicion or belief of future value through the existence of one who wants to, but has yet to commercially use the invention. Absent that, however, an invention of no value will not be used, and therefore will not be licensed.
The simplistic, cynical view of the patent system casts a myopic view of the near-term legal battle over patent rights, and the inefficiencies of the US legal system as a mechanism for resolving business disputes. Cynics focus readers on a perceived roadblock to their access to some desirable product or service, successfully concealing the proverbial man-behind-the-curtain and the important function he serves.
You see, Bessen is actually partially correct about one thing: some patent owners are not “real innovators.” In fact, some are not innovators at all. What the Bessen’s of the world want you to ignore, however, is the fact that many of these “real innovators” are not inventors. An innovator who proceeds without invention is a technology taker, while the inventor is a technology maker–a concept explored in my article “Patent Licensing Is The Answer, But What Is The Question?“. In it, I explained:
The gift of knowledge, once given (or taken), cannot be undone, so the technology takers have little gratitude to share with the technology makers of yesterday. Knowing this, the patent system serves to protect the technology makers’ respective investments, encouraging the gift of knowledge through disclosure.
The secondary patent market, aided in part by the Nathan Myhrvold‘s of the world, and patent licensing strategies, pioneered by the Jerry Hosier‘s of the world, helps transfer wealth from the takers to the makers in a couple of ways.* First, the secondary market gives technology makers an opportunity to liquidate their patent assets quickly, albeit at a discounted rate to middlemen who may then take advantage of the rights represented by the patent to recover and profit from their investment. Buyers that consistently bet on the right inventions are rewarded with funds that can be used to invest in new technologies, either along the same or different paths. Second, licensing strategies allow patent owners–who may be makers themselves, or simply investors–to receive value directly from technology takers.
When this cycle operates harmoniously, valuable technology creation can be consistently rewarded based on the value received from technology adoption. Takers can focus on innovation while simultaneously rewarding makers, incentivizing further investment in invention. Meanwhile, makers can focus on technology creation, ensuring that takers have an endless supply of new technology to commercialize. Otherwise, our country risks a bleak future, likened by author Mark Twain to a crab that can only move “sideways or backways.” Unless respect for private property includes respect for patent rights, the crabwalk may very well be our future mode of transportation.* As an aside, a fantastic Harvard Business Review article by Myrhvold explains many of the benefits to creating a robust capital market for inventions. Also, those interested can read my re-telling of the story about Jerry Hosier’s client Jerome Lemelson and his epic battle to license his many significant inventions that had been appropriated by many of the largest corporations in the world.