By Kevin E. Noonan --
It's beginning to seem like a week cannot go by without The New York Times publishing an article, frequently not on the Op-Ed page but with its news stories, purporting to show that patents are a bad thing - for business, for the country, and sometimes, it seems, for our souls.
This week, it is an article by Michael Fitzgerald, a Boston journalist, touting the not-yet-published results of a study by James Bessen, a lecturer at Boston University Law School, and his colleague, Michael J. Meurer. Having "crunched the numbers," Mr. Bessen and Mr. Meurer have concluded that the cost of patenting (actually, patent litigation) is greater than the profits made by companies with patents. Although they reviewed statistics between 1976 and 1999, the article provides only a few snapshots of the data, including the assertion that "global profits" in publicly-traded companies coming "directly from patents" amounted to $8.4 billion, and that these numbers increased to $9.4 billion in 1999. At the same time, according to the article, domestic litigation costs "alone" were $8 billion in 1997, "soaring" to $16 billion in 1999. Not mentioned in the article was whether the litigation costs were for both parties (in which case the cost to the patentee plaintiffs were about half the quoted number), or whether the monies recovered as damages were included in the profits from patents. For that we'll have to wait for their book, "Do Patents Work," coming in 2008.
Mr. Fitzgerald's article trots out the usual suspects of the argument, that most patents are not worth very much (as are most lottery tickets). However, this opinion is at odds with the results of a study by the European Commission reported in 2005 and directed to the very question of the economic value of patents in Europe (the study was entitled "Study on Evaluation the Knowledge Economy - What are Patents Actually Worth?"). The study was comprehensive, surveying 9,000 patent owners who had used the European Patent Office to obtain patents between 1993 and 1997. The study showed that the median value (half the respondents reporting more and half less) of the patents produced was €300,000, and 10% of the respondent patent owners reported values of €10 million or more.
The second negative allegation in the article is that innovation is damaged by patenting. It is certainly true that patents can be the source of mischief in the information technology field, but that doesn't mean the system is the problem. It is ironic that some of the same voices that cheered the government's prosecution of Microsoft for its alleged anticompetitive activities seem no less predisposed to wanting to reap the benefits of others' inventive contribution without paying a price. The fact that the investment costs for IT inventions can be low may mean IT inventions are more amenable to a different type of protection (see "Could Creating a U.S. 'Utility Model' Patent Fulfill the 'Need' for Patent Law Reform?"). And while it is unfortunate that Mr. Bessen neglected to protect inventions of his own during the 1980's (due to the misapprehension that "software can't be patented"), that fact isn't evidence that the system doesn't work or shouldn't apply to IT (although it may provide some insight into the motivations for his study).
The facts are that most technology companies invest in patents, both to protect their own technology and to use as bargaining chips with other companies in negotiations, and Mr. Fitzgerald's article acknowledges these facts. More importantly, patents provide leverage for inventors not backed by the resources of multinational corporations for whom there would otherwise be no disincentive to appropriating new technology. The professional naysayers regarding patents tend to be economists, whose track record in accurately modeling the way the world works can be sketchy at best (see, for example, "Freakonomics" and the detractors thereof); economists, when they are being honest, will admit that if the patent system didn't exist they could not justify creating one, but on the other hand it would be "irresponsible" to recommend abolishing it. Economics cannot prove or disprove that the system doesn't do exactly what it's supposed to do - promote innovation, although there may indeed be differential effects on different technologies in the way patents are used. As the article acknowledges, for some industries, like pharmaceuticals and biotechnology, patent protection is the sine qua non of investment, in view of its costs and uncertainties.
More importantly, the patent system promotes disclosure of new inventions, which is the Constitutional purpose of Congress's power to grant patents in the first place ("To promote the Progress of Science and the useful Arts..."). The debate focuses all too often on the rights bestowed in the patentee without recognizing the countervailing (and much more significant) benefits garnered by the public. Indeed, so what if most patents are not worth very much to the inventors or their assignees? Such patents cannot be a drain on the economy since there is little warrant for infringement or litigation over them. But their disclosures add to the body of knowledge that can support the next generation of tinkerers and inventors who can build upon the earlier work for their inventions. So long as the system encourages this type of disclosure with these results, it fulfills its Constitutional mandate and should be preserved against those who would irresponsibly advocate abolishing it.
It can only be evidence of how far we have traveled through the looking-glass in this debate that the article seriously suggests the creation of additional courts of appeal for patent cases.
Editor's note: James Bessen, Michael J. Meurer, and Cecil D. Quillen, Jr. are members of the non-profit organization Research on Innovation, which according to the organization's website was "created to conduct, sponsor and promote research on technological innovation and to disseminate the results of this research to a broad audience, both in academia and in industry."
Comments