Saturday, September 4, 2010

When anti-troll is anti-innovation

The Paul Allen/Interval Research patent lawsuit has occasioned much handwringing in the tech industry. Some of it recoils at the timing, nature and expansive claims of Interval. However, other is just reflexive antipathy to the idea of patents, particularly from the free software crowd.

Now one of the thought leaders (hate that term) of the open source crowd has weighed in with an expansive attack on all things patent. My friend Matt Asay of Canonical writes in The Register:

Businesses aren't built on ideas. They're built on execution. Google didn't win because it was the first to the search market. It won because it did search better than anyone else, and devised an ingenious way to monetize it.

This, more than anything else, is what makes the US patent system, overrun by patent trolls, so broken: it rewards ideas, not execution against them.

Anyone can think up a brilliant idea. The difficulty is in doing something with it.
Matt is clearly wrong here: I don’t know whether it’s his own bias (or vulnerability) as COO of an open source company, or just a overwrought reaction to the latest example of someone filling a silly suit (which may or may not make any progress in the courts).

While I understand the sentiment, ideas matter too. Things like the laser and the transistor and recombinant DNA got invented by real people who certainly deserved monetary rewards for their contribution to mankind — whether or not they create a company to bring those ideas to market.

My own test is “did this person cause this invention to benefit mankind sooner.” A patent troll goes to a market that’s already developed and says “pay me some money.” A legitimate nonpracticing entity says “I’ve invented something, I’ll help you commercialize it and we’ll share in the profits.”

As law school prof Frank Pasquale notes on the Madisonian, discounting the role of the specific inventor because “it would have happened anyway” is a slippery slope: Microsoft, Google, Facebook and Canonical would have happened too, but they got up one morning and decided to pursue the opportunity with the right strategy before someone else did.

If we don’t incentivize invention, we'll get less of it. This is particularly true today when “innovation benefactors” (to use Henry Chesbrough’s term) are becoming scarce due to budget cuts in basic research and higher education.

Innovation and Its Discontents: How Our Broken Patent System is Endangering Innovation and Progress, and What to Do About ItThe patent system certainly needs incremental reform to fix its excesses, as Adam Jaffe and Josh Lerner showed in their book Innovation and its Discontents. These reforms involve preventing junk patents from being issued, and making it easier to challenge the bad ones who slip through

People in the patent office certainly know about these problems, and are taking steps to address them. One of the most knowledgeable on patent excesses is Stuart Graham, a PhD economist with a JD who was appointed chief economist of the USPTO in March. A study Graham co-authored earlier this year concluded in part:
  • Technological innovation is linked to three-quarters of the nation’s post-WWII growth rate. …
  • Highly innovative firms rely heavily on timely patents to attract venture capital—76 percent of startup managers report that venture capital investors consider patents when making funding decisions.
  • Delay in the granting of rights has substantial costs.…
  • The enhanced post-grant review—the process by which a patent’s validity may be challenged through an administrative appeal in front of the USPTO—offers a cost effective and speedier alternative to litigation. The cost of such proceedings is expected to be 50-100 times less expensive than litigation and could deliver $8 to $15 in consumer benefit for every $1 invested.
Patent reform — whether through USPTO administrative action, legislation or court rulings — will improve the odds that a given patent is applied appropriately. However, no system created or run by human being is ever perfect, or ever will be.

Moreover, an effective innovation policy means more than just a patent policy: not all innovations are patentable, and patents are not always the best way to incentivize innovation.

Innovation and IncentivesSuzanne Scotchmer has talked about the historic role of prizes as a way to encourage innovations in her seminal book Innovation and Incentives. The idea of using prizes is catching on, with things like the X Prize and academic research on crowdsourcing. In some cases, the prize-winner even keeps the commercialization rights as an incentive to see it to market.

So while I certainly agree with Asay (and Chesbrough and many others) that we must reward those who bring goods and services to market, technological innovation is more than just execution: it’s also about technology. We need more than the MBAs and the salespeople and the bean counters and even the engineers who productize the technology; we also need the inventors who made it all possible.


Dale B. Halling said...


Very interesting blog. I particularly liked your piece on Capitalism saving the Chilean miners.

Patents may not be the only to incentivize innovations, but it is the way that is most consistent with capitalism. Patents are legal title to an invention and create a property right in the invention. Prizes have been tried for centuries as a way to provide an incentive to invent. For instance, see the prize started for determining longitude in 1714. Prizes are no substitute for property rights. The US was the first nation to create a modern patent system. In less than 100 year the US became one of the most technologically advanced countries in the world. This was not because of our great universities or because the government invested in research and development, it was because we were the first country to recognize an inventor’s natural right in their inventions.

When our legal system undermines inventor’s property rights in inventions, then the US suffers economically. For instance, the US government used antitrust rules to severely undermine the property right of inventors in the 1970s. As a result, the number of patents issued to US inventors declined in the 1970s. People were ringing their hands over where all the innovation had gone – the Japanese were going to surpass us technologically and economically. Ronald Reagan strengthen our patent laws and in the 80s and 90s the US became the economic and technological leader of the world. Since 2000 we have done a number of things to weaken our patent laws and as a result the number of patent issued to US inventors has declined slightly. We are again wondering where all the innovation has gone. The passage of Sarbanes Oxley which starves inventive firms of capital has not helped.

A strong system of property rights in inventions is not sufficient by itself to cause strong economic growth, but strong patent systems have always been coincident with pro capitalist policies. Inventions are the only way to increase real per capita incomes and property rights in inventions (patents) are the best way to encourage invention. For more information see my book The Rise and Fall of the American Entrepreneur: How Little Known Laws and Regulations are Killing Innovation –

Joel West said...


Thank you for your comments and congratulations on the publication of The Decline and Fall of the American Entrepreneur.

I think I’m more of a patent moderate than you are: not quite as pro-patent, but not like the anti-patent types who congregate around open source, or the big companies who want to crush individual inventors.

My litmus test is “patent troll,” because I find that the partisans think everyone or no one is a patent troll.

As someone on the fence, I think the term “patent troll” is very hard to define. On the one hand, I will say what many academics know but won’t publicly admit: Lemelson was a troll, and did a lot (by bad example) to create the problems we have today.

On the other hand, Bob Kearns had his life ruined when the Big Three automakers tried to cheat him out of his due. His family got some vindication by “Flash of Genius,” even if he wasn’t around to enjoy it.

So if you think that every thing that reduces the number of patents (or reduces patents by individual inventors) is bad, then we’re on opposite sides. But if you think that much of the patent reform is pushed by big companies who never want to pay a patent royalty again, we have some common ground.