Our patent problems go way beyond trolls

UPDATE: More recent data documents the serious uptick in patent troll litigation. Likely still true that the patent problem goes way beyond trolls, but they are a problem nonetheless. Recent research is here.

I did a Google Hangout with two intellectual property experts this week, and wrote an article to go along with it. The jumping off point was Tesla’s patent sharing announcement, but really it ended up being broader than that, covering the problems with our patent system and the possibility for reform.

One thing it was not really about was patent trolls, and it occurs to me based on some of the reaction to the article that I should have made this more explicit.

Here’s the chart from the post showing the explosion of patent litigation in the U.S.:

patentlawsuits

 

(If you’re curious about that spike at the end, read the update at the bottom of my post.)

The consequence of this dramatic increase is that patents have the effect of making innovation less profitable, rather than more so, in all industries except pharma and chemicals. In other words, when you count up the benefits to innovators from excluding others from their invention, and then subtract the cost of litigation, you get a negative number.

There are many reasons for this, among them the fact that in industries like software the “boundaries” around patents aren’t clear. So you have a patent and I have a patent and neither of us are quite sure what either of the patents does and doesn’t cover. That leads to a lot of unnecessary litigation, and beyond that just a lot of uncertainty.

But it’s worth spelling out that while patent trolls are a problem — one that needs to be addressed — they are not the primary driver of this explosion in litigation. Much of my post borrows from James Bessen of BU, one of the experts I interviewed, who has done research on this question. Here’s what he says in his book Patent Failure:

We also considered the role of patent “trolls,” which we define narrowly as individual inventors who do not commercialize or manufacture their inventions. One story claims that the increasing availability of patent litigators willing to work on contingency fees has spurred lawsuits by such trolls, who might otherwise be unable to afford litigation. The share of lawsuits initiated by public firms has not declined, however, nor has the share of lawsuits involving patents awarded to independent inventors increased. This suggests that the increase in litigation cannot be mainly attributed to patent “trolls,” at least through 1999. Of course, if we use a broader definition of “troll” that includes all sorts of patentees who opportunistically take advantage of poor patent notice to assert patents against unsuspecting firms, then troll-like behavior might be a more important explanation. Indeed, if patent notice is poor, then all sorts of patent owners might quite reasonably assert patents more broadly than they deserve. But then it is more appropriate to attribute the surge in litigation to poor patent notice, not to trolls per se.

As indefensible as the business model of companies like Intellectual Ventures is, that pure troll model does not itself explain the rise in patent litigation.

I wish I’d made this point even in passing in my HBR piece this week. It’s easy to blame the trolls, as well we should. But our patent problems go well beyond them.

Open source and inequality

I finally got around to this piece at The Atlantic “Why Workers Are Losing the War Against Machines”, by two MIT professors who’ve written a book on the subject. It’s a good piece focused on three disparities:

1. High-Skilled vs. Low-Skilled Workers

2. Superstars vs. Everyone Else

3. Capital vs. Labor

I want to focus on something the authors mention in #2 and make a quick point:

Technology can convert an ordinary market into one that is characterized by superstars. Before the era of recorded music, the very best singer might have filled a large concert hall but at most would only be able to reach thousands of listeners over the course of a year. Each city might have its own local stars, with a few top performers touring nationally, but even the best singer in the nation could reach only a relatively small fraction of the potential listening audience. Once music could be recorded and distributed at a very low marginal cost, however, a small number of top performers could capture the majority of revenues in every market, from classical music’s Yo-Yo Ma to pop’s Lady Gaga.

Economists Robert Frank and Philip Cook documented how winner-take-all markets have proliferated as technology transformed not only recorded music but also software, drama, sports, and every other industry that can be transmitted as digital bits. This trend has accelerated as more of the economy is based on software, either implicitly or explicitly. As we discussed in our 2008 Harvard Business Review article, digital technologies make it possible to replicate not only bits but also processes. For instance, companies like CVS have embedded processes like prescription drug ordering into their enterprise information systems. Each time CVS makes an improvement, it is propagated across 4,000 stores nationwide, amplifying its value. As a result, the reach and impact of an executive decision, like how to organize a process, is correspondingly larger.

This touches on themes I write about here frequently, and I see it as the link between intellectual property + open source, and inequality. The music example should be familiar to readers of this blog by now. Changing copyright terms could help transform a superstar market for music back into a folk or peer-to-peer market.

The software example is also amenable to more equitable IP approaches. What if the software that CVS used was open source? That would negate the winner-take-all nature of the example. I’m not recommending anything specific here, but just making the point that, given technology’s role in inequality via the creation of superstar markets, open source and intellectual property have to be part of the inequality discussion.

Slouching toward Winklevi

My original post lamenting our potential “Age of the Winlevi” is here. And here’s the latest evidence:

Kickstarter is a cool website that you may have heard about. Basically people with ideas can propose them on the site, and then raise funds from a distributed network of Kickstarter readers. It’s not a revolutionary concept, people have been raising money from investors from time immemorial. But with the Internet, it’s easier to reach a kind of broad audience and you can cut out some of the active work of financial intermediation.

It seems, though, that someone already “invented” this idea and wants to sue. In particular, Brian Camelio, who runs an actual site and is by no means a pure troll, holds a patent on “Methods and Apparatuses for Financing and Marketing a Creative Work”

That’s Matt Yglesias. As he said, that’s what we usually call competition. I ended my last post on this with a long Lessig quote. Here’s just part of it:

This is a hard fact for lawyers to understand (protected as they are by exclusionary rules such as the bar exam), but most of production in our society occurs without any guarantee of government protection. Starbucks didn’t get a government monopoly before it risked a great deal of capital to open coffee shops around the world. All it was assured was that people would have to pay for the coffee they sold; the idea of a high-quality coffee shop was free for others to take.

This matters a lot. If we allow ourselves to fall into the trap (or don’t climb out of it, depending on your view) of a Winklevi IP culture, we’re signing innovation’s death warrant.

Be annoying about patents

Last week Matt Yglesias had a great post offering his recommendations on what citizens can do to support their political preferences. He first offers the typical advice to contact your Congressional representatives. But his second suggestions is far more interesting:

— Be personally annoying about your political views when they’re relevant to your interactions in everyday life. I, being a jerk, will absolutely not allow someone to make a remark about the high prices, crowding, and mediocrity of DC bars without subjecting them to a discourse about the DC liquor licensing regime. Lots of people who think they’re not interesting in the DC liquor licensing regime are interested in its consequences. If you are in a car with me and we’re in a rush hour traffic jam, you are damn well going to listen to me talk about congestion pricing. This generally doesn’t work in Washington for national politics, but whatever it is you do, I’m sure you interact with lots of “apolitical” or moderately conservative people who remark now and again about things in their life to which politics is relevant. Point this out to them. Tell them who the bad guys are. Recommend some good blogs. Your friend Bob probably thinks he doesn’t care about monetary policy, but does care about the state of the labor market. Explain it to him. Be bold. Be annoying.

I endorse this. It’s a bit tricky, as you have to find that line between being annoying enough to get people a bit outside of their comfort zone and being so annoying that they tend to dismiss your arguments. After all, the messenger matters in politics. Even with your friends, colleagues, and broader social network.

But while Yglesias mentions congestion and liquor licenses as good examples, I want to offer an issue that I think offers a great opportunity to use this strategy, at least within certain networks. It’s patents. Here’s Reihan Salam at NRO, passing along this study:

(1) As if you needed any more reason to oppose patent trolls, they’ve looted half a trillion dollars over the last two decades from the productive sectors of our economy.

Some of my own thoughts on patents are here. But here’s the gist: we give out too many patents, especially in areas like software that probably shouldn’t be patentable at all. More specific to patent trolls, there is a whole industry sprouting up around a business model that secures patents in order to hold innovation hostage. For me, this is a prime issue on which to be annoying.

One of the biggest reasons is that, not unlike those Yglesias mentions, this issue isn’t yet ruined by partisanship. It’s not a big enough issue that Republicans and Democrats have instinctive views on the subject, as they might on healthcare, taxes, etc.

The second issue is particular to my network, so it may or may not apply for you. For whatever reason a lot of my friends touch on technology, law, and innovation. Do you know any corporate attorneys? Entrepreneurs? Software developers? Ask them what they think about patents. Particularly for attorneys (and potential attorneys) I think this is important. There is a lot of money in IP law. Should there be? Arguably, no. If you have friends who work in and around IP, don’t be afraid to get a little annoying. Ask them what they think about patent trolls, and how they would get rid of them. Ask them if they think patent terms are too long. Ask them if they think software should be able to be patented. Remind them that the point of IP is squarely to incentivize innovation, and NOT AT ALL to reward inventors. If we’re ever going to fix the myriad of issues with our current IP policy, we’re going to have to be annoying.

(Most of this is equally applicable to copyright. So if you know content creators, many of these same lines of annoyance/inquiry can also be beneficial.)

 

How to protect IP

The Washington Post editorial board favors legislation to protect copyright holders from infringement online. Here’s how the Protect IP Act would work:

The proposal would allow the Justice Department or a private rights holder to move against a rogue foreign Web site by convincing a federal judge that the site is “dedicated to” and has “no significant use” other than copyright or trademark infringement. Defendant Web sites would have the right to contest the allegation. An otherwise legitimate site that may have sold a product that turned out to be a fake or unknowingly linked to or posted an item to which it did not have the rights would be spared legal action.

Putting aside the overall desirability of the bill – I’d have to learn more – what would the impact be on copyright holders? Would their position be strengthened? That’s the assumption, and certainly the conventional wisdom. But I can imagine (fantasize?) about a different result.

Say tomorrow downloading or streaming movies or music illegally was impossible. What would the impact be? Would a generation raised on free access to culture throw up its hands and start paying? Or would those artists, creators, labels, studios, etc. who made their content freely available legally gain an advantage? You could imagine shows that could be streamed for free online starting to beat out those that couldn’t, once illegal downloads went away. Or music licensed under Creative Commons finally enjoying significant economic advantage over that which had to be purchased.

You can tell yourself a story about either open licensing or at least legal streaming offering greater not less competitive advantage in this environment. I find it easier to imagine in music, personally, because it’s more difficult to imagine a unified stance against free distribution. Sure, maybe you could get 95% of TV shows behind paid gates. Ditto movies. But does anyone think that’s how it’d go with music? Artists and labels would put their music out for free (either open licenses or legal streaming) in order to gain advantage against more popular artists. And in that way, perfect legal control of illegal copying could theoretically be a boon to those favoring free (as in beer or speech) access to culture.

None of this may be likely, and the kind of perfect control required is pretty spooky. But I find it to be an interesting thought experiment.

NPR on patent trolls

A friend asked for my thoughts on NPR’s piece from a few weeks back on “patent trolls.” Whereas, I am fairly confident about my views on copyright, I’m much less so with respect to patents. But hopefully my response below represents at least a decent starting point for thinking about their efficacy. What follows is my email response to my friend, lightly edited, mostly to add capital letters….

The piece fit pretty well w/ what i’ve seen elsewhere and it’s specifically about software patents. a couple quick things:

1) The point of patents are to incentivize innovation. That’s it. Not to grant people rights to their god given property or whatever. It’s a consequentialist framework.

2) Best I can tell there is near consensus in the software and computer science worlds that software patents are a bad idea. I base that on references I’ve read elsewhere, what’s said in the piece itself, conversations I’ve had with programmers and a talk I went to earlier in the year by a notable comp scientist.

3) It’s completely possible that software patents make no sense but that other areas of patent law are either working well or even are not strong enough. While I think the case for shortening copyright terms is 100% airtight, I don’t pretend to have a view about, say, pharmaceutical patents. Software, though, seems much clearer.

Now to look at the best argument presented in favor of today’s crazy software patent setup, from the NPR piece:

IV, for its part, says its job is to encourage invention, not to bring products to market.

Imagine an inventor out there — someone with a brilliant idea, a breakthrough. This inventor has a patent, but companies are stealing his idea. And this inventor doesn’t have the money or legal savvy to stop them. That’s where IV comes in. It buys this inventor’s patent, and it makes sure that companies who are using the idea pay for it.

(IV = intellectual ventures, a “patent troll”)

So this seems pretty sympathetic right? If not for this, lone inventors couldn’t reap the rewards of their creations. They’d be stolen by big companies. So there are 2 lines of attack against this i think.

a) The piece points out this isn’t realy how it works. This is a shady business for big money based a lot around big companies vying against each other, not about protecting small guys

b) Even if it were like that, we have to go back to the purpose of patents. The purpose of patents is to get innovation. So if a guy invents something and a company steals it, is that bad? Only if no one was going to invent it otherwise. if, absent the incentive, that innovation is never brought into the world.

That sounds harsh, and even i dislike he idea of someone else making money off another person’s idea. But we have to respect the point of intellectual property, which is incentives.

And just as importantly, the above fake scenario preys on our leaning to prize “invention” and “ideas” and undervalue execution. Talk to any investor or entrepreneur and they will tell you that it’s execution that makes a successful product. So when we bemoan the guy who didn’t get paid for an “invention” we miss a lot of the value add. To create a new thing takes more than an idea. Whether the idea itself should be given protection under IP needs to be based on the consequentialist view described above.

I have a whole other set of thoughts on the idea vs. execution thing, and what i described to you is the mainstream entrepreneurial view, NOT my own view (though my own view also places relatively less value on initial ideas or “inventions”) but that’s a separate topic.

NYT ignores draconian copyright terms

The New York Times had a lengthy piece on a legal battle between musical artists and the recording industry. Here’s the lede:

When copyright law was revised in the mid-1970s, musicians, like creators of other works of art, were granted “termination rights,” which allow them to regain control of their work after 35 years, so long as they apply at least two years in advance. Recordings from 1978 are the first to fall under the purview of the law, but in a matter of months, hits from 1979, like “The Long Run” by the Eagles and “Bad Girls” by Donna Summer, will be in the same situation — and then, as the calendar advances, every other master recording once it reaches the 35-year mark.

The record companies object, and there seems to be a legal battle shaping up. But nowhere in the article is there any mention of the fact that no one should own these recordings after 35 years!

My brother, a law student, pointed out to me that mine is a normative claim, whereas the article centers around a legal battle. True. But it’s more than that. By the criteria the Constitution sets out for intellectual property, today’s excessive terms clearly fail. The purpose, laid out in the copyright clause, is:

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.

I can’t say it any simpler than this: no one seriously thinks today’s copyright terms are maximizing the creation of art and culture. It’s blatantly obvious that terms could be significantly shorter without any loss in terms of creation. So by the the criteria set out in the constitution, the battle NYT describes is a sideshow; the real story is that copyright terms are out of control.

All I’m asking for is a brief mention. The artists’ “side” is represented, as is the record companies’. What’s missing? The public’s side. This is the tragedy of what political scientists refer to as concentrated benefits/distributed costs. Artists and record companies each gain dramatically from excessive copyright protection. The public loses out, but each individual loses only a little bit, so it’s hard to organize politically to institute more sane policies. That explains the politics of copyright, but one would hope the NYT would go out of its way to give voice to public interest arguments.