Ron Bailey writes about last weekend’s excellent Planet Money story “When Patents Attack,” which focuses on the enormous market in “defensive” patents, purchased as a kind of retaliatory hedge against lawsuits from other technology companies:
In early July, the bankrupt tech company Nortel put its 6,000 patents up for auction as part of a liquidation. A bidding war broke out among Silicon Valley powerhouses. Google said it wanted the patents purely to defend against lawsuits and it was willing to spend over $3 billion to get them. That wasn’t enough, though.
The portfolio eventually sold to Apple and a consortium of other tech companies including Microsoft and Ericsson. The price tag: $4.5 billion dollars. Five times the opening bid. More than double what most people involved were expecting. The largest patent auction in history.
That’s $4.5 billion on patents that these companies almost certainly don’t want for their technical secrets. That $4.5 billion won’t build anything new, won’t bring new products to the shelves, won’t open up new factories that can hire people who need jobs. That’s $4.5 billion dollars that adds to the price of every product these companies sell you. That’s $4.5 billion dollars buying arms for an ongoing patent war.
Perhaps this is an obvious point, but it’s worth dragging it out explicitly: The very existence of such massive trade in “defensive patents” is, in itself, pretty strong evidence that there’s something systematically quite wrong with the American patent system—because a patent that’s useful for “defensive” purposes is very likely to be a bad patent.
As everyone acknowledges, there’s a large deadweight loss involved in the creation of any patent system (and intellectual property more generally), because it prevents people from making free use of an intrinsically non-rivalrous good: Information. The static loss is, in theory, supposed to be outweighed by a dynamic gain: The incentives created by the patent system lead to the creation of new inventions that would never have existed but for the inventor’s ability to fully internalize the value of that invention.
But now think about how defensive patents work. Companies aren’t buying them—or buying into the services of companies like Intellectual Ventures—because they provide otherwise unavailable technical insights. The point, rather, is to acquire (or have access to) a bundle of patents that any potential litigant who sues you is likely to be “infringing” in their own products. Like nuclear weapons, the point is not to actually use them—but only to be able to threaten to use them if anyone else should deploy theirs against you.
This only works, however, if other companies are almost certain to have independently come up with the same idea. A patent that is truly so original that somebody else wouldn’t arrive at the same solution by applying normal engineering skill is useless as a defensive patent. You can’t threaten someone with a countersuit if your idea is so brilliant that your opponents—because they didn’t think of it—haven’t incorporated it in their technology. The ideal defensive patent, by contrast, is the most obvious one you can get the U.S. Patent Office to sign off on—one that competitors are likely to unwittingly “infringe,” not realizing they’ve made themselves vulnerable to legal counterattack, because it’s simply the solution a good, smart engineer trying to solve a particular problem would naturally come up with.
Needless to say, every patent granted for an idea that any number of suitably skilled engineers could have (and would have, and did) come up with is a patent that probably shouldn’t be granted—a pure deadweight loss that’s actually compounded by the squandering of resources on the “arms race,” with no compensating dynamic gain. Actually, there’s probably a dynamic loss: You end up creating a huge incentive for smart and skilled people to spend their time and energy not coming up with a brilliant idea that nobody else would have, but instead trying to be the first to put on paper ideas that are obvious (to a properly trained and up-to-date person) but haven’t been locked down yet—the solution, again, that almost any professional would have come up with once they were actually trying to implement the relevant technology. A sector where investment in defensive patents is so massive, then, is a sector where—even if some of them do genuinely add value—patents are probably doing more harm than good on net.
Update: Conveniently, via Techdirt, some empirical support for this idea comes in a new paper by Stanford law prof Mark Lemley. Rather than being produced by a lone genius who must be granted a monopoly to encourage creation of a benefit we’d otherwise do without, major innovations are typically independently arrived at by many people or groups nearly simultaneously. They are, as the saying goes, ideas whose time had come.