Not just Apple: Patents may be doing more harm than good

A few days ago, the US Patent and Trademarks Office cancelled an Apple patent for “rubber-banding”, which was one of the patents over which the company had sued Samsung and won $1 billion in damage s two months ago.

While cancellation of the patent does not mean Apple’s case will now be sent for a six, but it does raise a very pertinent question: is the US patent office being too lax in what it considers patentable? How can patents be given for such novel but not particularly beneficial ideas like “Rubber-banding”, “Slide to power off” or designs like “Squares with rounded edges”?

The nonsense began in the run-up to the dotcom boom, when software patents were granted for alleged innovations like Amazon’s One-Click, as though trying to do a web-based deal with one click is an earth-shattering idea.

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More importantly, it is time to ask: is there a case for patent protection at all when the public welfare benefits of abolishing patents in a wide range of industries is much greater?

Two intrepid researchers at the Federal Reserve Bank of St Louis, Michele Boldrin and David K Levine, have produced a working paper that strongly argues the case for abolishing patents.

[caption id=“attachment_502773” align=“alignleft” width=“380”]  A Samsung Galaxy Note and iPhone 4. Reuters[/caption]

Their simple conclusion is revolutionary in its scope:

“A closer look at the historical and international evidence suggests that while weak patent systems may mildly increase innovation with limited side-effects, strong patent systems retard innovation with many negative side-effects. Both theoretically and empirically, the political economy of government-operated patent systems indicates that weak legislation will generally evolve into a strong protection and that the political demand for stronger patent protection comes from old and stagnant industries and firms, not from new and innovative ones. Hence the best solution is to abolish patents entirely…” (Italics ours)

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In short, patents are about monopolists extracting rents, not innovation.

Boldrin and Levine argue - and with lots of evidence at their command - that patents are used not for protecting innovation but to prevent it. And it is usually used not by innovators, but by incumbents bent on protecting their monopolies long after the innovation is digested by the market.

The authors give the example of Apple, whose iPhone was released in June 2007, but its first competitor - the HTC Dream, based on the Android operating system - came only in October 2008. By this time, Apple had sold over 5 million phones, and even after the Android phone hit the market, in the subsequent year Apple sold 25 million phones while Androids sold under seven million.

They thus conclude: “It is a fact that Apple did not try to use patents to prevent the Android phones from coming into its market and the subsequent patents fight has been taking place largely after 2010.” So Apple’s success and market value came more from the fact that it had cracked the smartphone market with its iPhone in 2007; patents had little to do with this success. Apple is, in fact, using patents to protect its grip on the market.

Boldrin and Levine say the real drivers of innovation are competition and first-mover advantage, not patent protection, and this is historically proven. They say: “The initial eruption of small and large innovations leading to the creation of a new industry - from chemicals to cars, from radio and TV to personal computers and investment banking - is seldom, if ever, born out of patent protection and is, instead, the fruits of highly competitive-cooperative environments. It is only after the initial stages of explosive innovation and rampant growth end that mature industries turn toward the legal protection of patents, usually because their internal grow(th) potential diminishes and the industry structure become concentrated.”

In fact, there is another bit of damning evidence. Companies develop or buy patents not for the technology benefits they bring, but purely as defensive strategies. The authors point out that Google recently bought out Motorola Mobility for its patents portfolio. Google made this acquisition not for the truckload of useful patents and ideas they brought, because “few, if any, changes or improvements to Google’s Android operating system will result from the ownership or study of these software patents. The purpose of obtaining this patent portfolio is purely defensive: it can be used to countersue Apple and Microsoft and blunt their legal attack on Google.”

It is worth recalling what US Circuit Judge Richard Posner thought of Apple and Motorola suing each other when he threw their patent infringement cases against each other out. He said: “The notion that these minor-seeming infringements have cost Apple market share and consumer goodwill is implausible, has virtually no support in the record, and so fails to indicate that the benefits to Apple from an injunction would exceed the costs to Motorola. An injunction that imposes greater costs on the defendant than it confers benefits on the plaintiff reduces net social welfare.”

In pharmaceuticals, where patent protection may be most needed in view of the high life-saving benefits of innovation and high costs of research, Boldrin and Levine cite a case study in India to rubbish even this argument for patent protection. The study found that in the Quinolone family of drugs, the introduction of patents resulted in public welfare losses of $300 million while the gain to the companies was a meagre $20 million from protective patents.

If the loss from a patent to the innovator is one-fifteenth the public gain from it, what is the logic of patent protection?

Boldrin and Levine also give us an interesting titbit from history. Apparently, the Wright brothers, fathers of the airplane, made modest improvements in “existing flight technology, which they kept secret until they could lock it down on patents.” After that, they used the patents to “monopolise” the US market “and prevent innovation for nearly 20 years.”

Patents, seen from this angle, are more a menace to society than an aid to innovation and discovery.

The case for abolishing patents have never been stronger.