Save Silicon Valley — abolish patents now

Remember Jonathan Swift’s “A Modest Proposal“? Well, two very serious guys — economists at the Federal Reserve Bank in St. Louis — have a modest proposal of their own: Abolish the U.S. patent system. But unlike Swift, who sarcastically advocated the consumption of Irish babies, these men are not joking.

“Our preferred policy solution is to abolish patents entirely,” Michele Boldrin and David K. Levine wrote in a recently published paper. That statement, of course, flies in the face of the conventional wisdom that patents foster innovation and improve productivity. Both truisms, they say, are wrong. In fact, patents have a “negative effect on innovation,” they say.

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Obviously, this is awfully radical, but it’s worth noting that 18 months after the largest patent reform legislation in decades — the America Invents Act — was signed by President Barack Obama, patent litigation has continued to increase. There are some technical reasons for that, but the bottom line is clear: The act hasn’t made an appreciable difference.

Meanwhile, patent trolls continue their work, accumulating more and more patents they’ll never use for anything constructive and suing anyone who does. Companies like Apple and Samsung waste tens of millions of dollars on ultimately fruitless litigation: Does anyone really think that a rounded corner is an idea that should be covered by a patent? And giants like Google and Microsoft waste billions acquiring a defensive portfolio of patents. With the possible exception of the pharmaceutical industry, no sector of the economy is more embroiled in the patent mess than information technology.

What a waste.

First-mover advantage, not patents, is decisive What creates success in the market: Getting there first with a great product or a patent? It’s the former, argue Boldrin and Levine. Apple, for example, launched the first iPhone in June 2007, and no serious competitor emerged until the HTC Dream came to market in October 2008. By 2010, 25 million iPhones had been sold, compared to 7 million Android smartphones.

It wasn’t Apple’s patent portfolio that led to its success; it was innovation and the advantage of being first to market. It’s not at all clear, Boldrin and Levine argue, that Apple’s patent portfolio slowed the competition very much.

Richard Posner, the federal judge who presided over the patent fight between Apple and Motorola Mobility, makes a similar argument. “When you are dealing with products that have very short lives, you often don’t need patents because by the time competitors wise up, you’ve moved on,” Posner said in an interview with the New York Times. Indeed, in such industries, patents — which are primarily intended to encourage innovation — have the exact opposite effect and discourage innovation, he added.

Aviation, the high-tech industry of its day, was similarly affected, the fed economists argue: “A good case in point is the Wright brothers, who made a modest improvement in existing flight technology that they kept secret until they could lock it down on patents, then used their patents both to monopolize the U.S. market and to prevent further innovation for nearly 20 years,” they wrote. The same was true of Guglielmo Marconi, whose patents slowed the progress of radio technology for years.

Eliminating patents might be less harmful than you’d think. When industries are at their most dynamic, it is innovation — not patent protection — that makes the difference. Patents historically have come to the fore when industries begin to slow and become concentrated in fewer and fewer hands.

“The initial eruption of innovations leading to the creation of a new industry — from chemicals to cars, from radio and television to personal computers and investment banking — is seldom, if ever, born out of patent protection and is instead the fruit competitive environment,” say Boldrin and Levine.

How to fix the patent system As I said, Boldrin and Levine are quite serious, but their paper never really presents a concrete alternative. And they concede that the chances of actually abolishing the patent system are slim.

They write, “Our preferred policy solution is to abolish patents entirely and to find other legislative instruments, less open to lobbying and rent-seeking, to foster innovation.” That’s altogether vague, and they quickly pivot to a list of eight possible reforms that would “reduce the harm done by the patent system.” They include:

• “Stop the rising tide that, since the early 1980s, has extended the set of what can be patented and has shifted the legal and judicial balance substantially in favor of patent holders,” a reform that would stop companies from patenting obvious features like those rounded corners
• Reduce the time that patents may remain in effect
• Tailor patent regulations to suit the needs of different sectors of the economy, instead of the current one-size-fits-all approach

For his part, Posner has one proposal that could make a huge difference. Indeed, he already put it into practice in the dispute between Apple and Motorola Mobility. In that case he ruled that companies can no longer come up with stratospheric claims of damages without calculating precisely how much the infringing component is driving demand for the product. As a New York Times columnist noted, when it comes to a rounded corner, “that’s probably not very much.”

I doubt that patents will ever be abolished, but by putting the issue on the table for rational discussion, Boldrin and Levine has done a service for everyone who cares about innovation in technology.

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