The American entrepreneurial dream used to be to build an invention, file for a patent, and start making product and profits. But a key part of that process - the patent - is increasingly viewed as a barrier to innovation and profitability rather than a help. Inventors and entrepreneurs today may be better off pitching the patent process and embracing competition.
Overall, I believe patents and trademarks can be a force to drive innovation; they offer the promise of rewards and success for hard work - a great challenge dividend. But at the end of the day, a patent is a legal monopoly - and any Economics student can describe the dead weight loss on society that monopolies cause. It is a tricky balance - and in today's legal environment, and when patents are awarded too broadly, patents are clearly hurting innovation and improvement.
There are two key areas where patents are inhibiting improvement:
- Granted too broadly. In the recent twenty years or so, companies have been aggressively patenting "innovations" that were far from the product of years of research and toil. Take Amazon.com's "1-Click" patent, for example. Overall, the U.S. Patent Office thought little about how to patent ideas and software, so they granted patents liberally. Many "patent trolls" are following the American dream by buying up patents and aggressively suing large and small companies. Thankfully, the Supreme Court recently made a unanimous decision to increase the bar for patent grants. But much more reform is needed. The patent office itself is underfunded and slow to change.
- Too costly to secure. More and more companies are feeling the pain of patents in their bottom line. New research by James Bessen - who himself invented Wysiwyg software, without getting a patent - shows that litigation costs outstrip patent profits for public companies. As the New York Times reports, they estimate that $9.3 billion in global profits came from patents in 1999, yet domestic litigation costs alone totaled $16 billion. In addition to hurting hard profits, patent protection also seems to take companies' eyes off of their traditional business lines. My recent blog entry on Levi's suggests that the company's aggressive trademark litigation is coming at the cost of innovation.
I believe that our economy would be much more innovative and productive if patents were severely restricted. At the end of the day, they provide an incentive, but at a high cost of monopoly power and litigation expenses - which end up reducing the net benefit of the original invention. Further, some of the greatest "inventions" of recent years have nothing to do with patent incentives; for example, the Firefox browser, Starbucks, and iPod all have been successful because of great design rather than a single patent.
Thankfully, the abuse of the patent system is a challenge that is leading the courts to interject and improve the process.
UPDATE: I had to add that in the news yesterday, four prison inmates were punished for copyrighting their names and claiming that the prison owed them millions in licensing fees for unauthorized use of their names. It's a pretty good sign that things need to change.
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