by on March 16, 2012 at 7:26 am in Economics, Law | Permalink

AEI held a session on patents and patent reform building off Launching the Innovation Renaissance. I opened and Judge Paul Michel, Chief Judge, United States Court of Appeals for the Federal Circuit (retired), James DeLong of the Convergence Law Institute and Michael Abramowicz of George Washington University School of Law all offered comments.

Here is one brief bit from my talk. You can find the whole thing here.

1 Cliff March 16, 2012 at 9:27 am

Did you try to get a practitioner to comment? Or an industry person?

2 IWantCookieNow March 16, 2012 at 12:50 pm

Cliff, at least if you talk to software industry people, a lot of them hate patents passionately. And guess what, software is an industry that _used_ to be unencumbered by patents when it was young and indeed thriving.

3 Cliff March 16, 2012 at 1:16 pm

Yes, I am well aware of this

4 Alvin March 16, 2012 at 1:23 pm

No it wasn’t…it was dominated by a few large companies like IBM and Microsoft…until software was deemed patentable by the courts in the late ’90s. Then we got more competition from companies like Google, Facebook,etc. who seek patent protection.

Patents are very important in the pharmaceutical industry, and these are usually strong patents on distinct chemical entities. Tell me, who is the dominant pharma company??? There isn’t one, because patents are the ultimate game-changer in dislodging or preventing the establishment of dominant players. Why do you think the large established companies (GE, IBM, Microsoft) spent millions of dollars lobbying for the recently enacted patent reform bill that further weakens patents?

Alex is completely off the mark in this area. His instincts are so bad in this field.

5 Alvin March 16, 2012 at 1:25 pm

Just to follow-up on my question about why the big tech companies pushed for the law. It’s because the last thing they want is market displacement from a new start-up with a game-changing idea (patent). A strong patent could ruin them. That’s why the big tech companies want weak patents.

6 Rahul March 16, 2012 at 1:48 pm

Ok, so who wants strong patents? Do we see the start-up-lobby fighting for strong patents? Small businesses?

The one lobby I guess wants strong patents are patent lawyers (BTW, are you one, by chance? )

7 Alvin March 16, 2012 at 1:53 pm

The start-up lobby is not organized and doesn’t have the clout with lawmakers/lobbyists. The people against the bill were individual (small) inventors and the life sciences community. The high tech types drank the kool-aid.

8 Cliff March 16, 2012 at 2:44 pm

Yes, small businesses and individual inventors did lobby for strong patents. As did patent lawyers, yes. And I am one.

9 Cliff March 16, 2012 at 1:27 pm

Just to be clear, you are saying software was not thriving until software became patentable in the late ’90’s, and then the software industry took off?

10 Alvin March 16, 2012 at 1:51 pm

I’m saying the software industry was dominated by big established companies that had no fear of market displacement because software was considered unpatentable until the mid-to-late ’90s. Why do you think IBM dominted the industry for decades, and then Microsoft after that? They couldn’t be displaced by fear of the patent. There was no such dominance in the pharma or biotech area, why is that? Because strong patents prevented the dominance by one or a few companies.

Again, Alex is dead wrong on these matters. It’s embarrassing to read his “conventional wisdom” arguments in this area. He is contributing nothing new, and the rest of you sound like the ‘wisdom of the crowds’. You’be bought into the bullshit that patents slow down innovation. Just the opposite is true.

11 Rahul March 16, 2012 at 2:01 pm

Boeing and Airbus have dominated aviation for decades. Patenting in aviation is strong. How does your theory explain this? There are lots of similar examples from patent-strong sectors.

12 Cliff March 16, 2012 at 2:46 pm

Your argument does not really make sense to me.

13 Alvin March 16, 2012 at 6:45 pm

In response to Rahul below, I don’t know the aviation industry, but I would guess like the auto industry, there are high capital costs, barriers to entry, and it is a highly regulated industry. That said, there is strong competition – and I doubt any dominance – among parts suppliers who take out patents on their designs.

To Cliff, what doesn’t make sense?

14 Newt March 16, 2012 at 8:58 pm

Just so any unsuspecting people unfamiliar with the software or computer industries and small businesses don’t get confused by Cliff:

-The software patent regime is considered to be the greatest danger (equal with byzantine immigration procedures) to the computer and software industry in the USA. Most companies, especially small and innovative companies but also Google and other large businesses, agree with the overwhelming majority of computer and software engineers that patents are completely inappropriate and extremely harmful in all aspects of software and most computer hardware.

-Small companies prospered in the 1980s and 1990s in the computer software industry. Some of them became quite large, others were bought by large companies, others provided fine incomes to their founders.

-Innovative companies in the software industry have never earned significant revenue from patents.

-Software patents, by and large, do not reveal methods, describe new inventions, or even make claims specific enough for a practitioner to identify the invention. The patent office does not employ software specialists or consider the software and computer science journals and literature as part of its background research.

-Companies that have the millions to fight a single software patent claim usually can have those patents declared invalid in court. It just costs more than most companies can pay. The Oracle patents being litigated with Google have almost all been declared invalid. The patents that Microsoft and RIM paid billions to trolls over to avoid injunctions have been declared invalid on review and appeal; no money was paid back by the tolls, of course.

-Cliff’s position here is adopted by approximately nobody but patent lawyers. You would search for years to find a company founder or programmer who believed any of it.

15 The Original D March 16, 2012 at 10:22 pm

Yeaaah… You left out that something called the Internet also caught on in the mid-late nineties. Not to mention open source software.

Google buys patents for protection, but they make very little software that is actually licensed. Their primary defense is trade secrets, such as how they scale their data centers.

My company was started for a few thousand dollars thanks to open source. Patents? Not much help.

16 Eric H March 17, 2012 at 7:48 pm

International Business Machines was a hardware company that happened to make software to run their Big Iron (which was definitely patented and capex-intensive). When the hardware shifted toward the smaller end (declining costs due to, among other things, Moore’s Law), they lost their dominance (to DEC, then MS, among others). MS rode the small machine wave better than any competitor, partly on the strength of their Office package (which sold well even for the Mac). Google and Facebook have been enabled by the tubez.

Your argument that they had no fear of displacement really doesn’t make much sense to me, either. So if there had been “better” patent law, they would have placed a voluntary ceiling on their market share because someone might horn in on the territory? I doubt it. Wouldn’t IBM have been in the strongest position to patent software and therefore dominate, much as HP did in the desktop printer markets?

Though I haven’t read it, I have been told that F.M. Scherer’s work shows that innovation and patent law are inversely related. Your argument has less to do with innovation than with concentration.

Alex’ discussion w/r/t the fashion industry is dead on. With the exception of utility patents, there is virtually no resort to patenting, yet it is both innovative and unconcentrated.

17 IWantCookieNow March 16, 2012 at 11:31 pm

“No it wasn’t…it was dominated by a few large companies like IBM and Microsoft…until software was deemed patentable by the courts in the late ’90s. Then we got more competition from companies like Google, Facebook,etc. who seek patent protection.”

No. No. Just… no.

18 Alvin March 17, 2012 at 1:04 am

With weak patents or no patents on software, companies like IBM and Microsoft simply steal other people’s ideas and dare these small guys to sue them in copyright. Copyright protection is weak because you can tweak the code a bit or write your own code with the same functionality and there’s no copyright infringement. Copyright won’t do.

Patents are what allow the David’s to compete with the Goliath’s . Why Microsoft dominated operating systems and their applications software for almost decades??? Weak patents on software. So all you kool-aid drinkers who oppose software patents are propping up the monopolists. The old bootleg and baptists joining forces.

Got a great idea but no patent protection, why commercialize your idea when Microsoft or GE can simply steal it and brand it as their own?

19 Justin Mazza March 16, 2012 at 12:52 pm

Hi Alex,
I am okay on patenting certain things but it can get out of control. I was watching an episode of Kitchen Nightmares where a restaurant owner alienated her customers and neighbors by having a patent on the word “Hon” short for honey which is a popular saying in Baltimore.

That meant that no one could use the word “hon” on any merchandise or she would go after them. With the help of Gordon Ramsay she saw the error of her thinking and released the patent on the word “Hon.”

20 Cliff March 16, 2012 at 1:18 pm

Augh! There are no patents on words. She/you must have meant a trademark. And trademarks are only for use in connection with specific products and/or services. Trademarks are very un-controversial.

21 Stuart March 16, 2012 at 1:31 pm

Justin meant trademark not patent but he is correct that the owner trademarked the term hon and it was hugely controversial.

22 Cliff March 16, 2012 at 1:47 pm

That’s not very detailed, but it sounds like the problem was a lack of understanding. I can’t imagine everyone would be that upset just because they could not use HON as a brand for napkins, buttons and hats?

23 Rahul March 16, 2012 at 1:57 pm

I don’t see why people created a big controversy. The protection only applies to those specific products, right? People could still start a “Hon-Cola” or a “Hon-burger” or some such.

Is @Justin’s assertion valid that this “meant that no one could use the word “hon” on any merchandise or she would go after them. ”

24 Cliff March 16, 2012 at 2:48 pm

It applies to those specific products and anything that would be confusingly similar. But right, soda and burgers would not be confusingly similar to buttons and hats.

25 Jay March 16, 2012 at 2:34 pm

What sort of innovation is there when software companies and/or non-practicing entities (patent trolls) are suing one another for infringement over a document that broadly states a common idea?

Why are software patents being allowed to halt all variations of code. I can’t see why they are allowed to stop an If/Else statement used with “X*Y=Z” because somebody patented using a Switch case with “X+Y=Z”.

26 The Original D March 16, 2012 at 10:23 pm

That reminds me. The general counsel for my first company went on to become a patent troll. He made tens of millions enforcing patents for products that were never brought to market by their inventors.

27 *daniel March 16, 2012 at 4:20 pm

Alex, is there a full version of this talk anywhere? I’d very much like to watch the rest of it.

28 *daniel March 16, 2012 at 4:21 pm

Haha, nevermind. I’m blind. Following the link works for me!

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