State of Innovation

Patents and Innovation Economics

The Myth that Patents are a Monopoly

A patent gives the holder the right to exclude others from making, using or selling the invention.  35 USC 154.  It does not give the holder the right to make, use or sell their invention.  A monopoly is an exclusive right to a market, such as an electric utility company.  An electric utility company has the exclusive right to sell electricity in a certain territory.  Since a patent does not even give the holder the right to sell their invention, let alone an exclusive right to a market, it is clearly not a monopoly. 

When a person describes a patent as a monopoly to be consistent they should also state that they have a monopoly over their car or over their house.  In fact, they have more rights in their car and house than a patent gives the inventor over their invention, since you have a right to use and sell your car or house.  A patent does not give these rights to an inventor over his invention.  All invention are built upon existing elements (conservation of matter) and if the elements that the invention uses are patented, then the inventor will not have the right to sell their invention without a license.

Some economists argue that a patent is designed to give the holder monopoly power.  Those economists who are consistent also state that all property rights give some monopoly power.  The property rights are monopolies thesis shows how confused economic thought is on this subject.  The only logically consistent definition of a monopoly is an exclusive right to a market.

According to Wikipedia “In economics, a government-granted monopoly (also called a “de jure monopoly”) is a form of coercive monopoly by which a government grants exclusive privilege to a private individual or firm to be the sole provider of a good or service; potential competitors are excluded from the market by law, regulation, or other mechanisms of government enforcement.”  Since patents are clearly “government granted”, then this is the appropriate definition.  Since a patent does not even provide the holder the right to sell their invention, it clearly does not grant an exclusive privilege to a firm to be the sole provider of a good or service.

People who suggest a patent is a monopoly are not being intellectually honest and perpetuating a myth to advance a political agenda.

May 31, 2009 - Posted by dbhalling | -Law, -Philosophy, Patents | , , | 17 Comments

17 Comments »

  1. Theory yes. Real world implementation is.

    2 people go up to buy a patent. First person is my friend so I give him the patent usage rights for nothing. Tell my friend to tell no one about this agreement. Next person I hate so I charge a lot of money to use the patent.

    There is no regulations requirements to tell anyone what these deals were. So using patent to create a monopoly happens because of theses stealth actions out of site of competition regulators.

    You don’t need the right to exclusive right to a market to make a monopoly. You just need the means to make it unfair so everyone else competing is over priced compared to the one you want to live.

    Give it enough to your competition will die so giving you the monopoly you always wanted.

    Minor alteration to patent law requiring all patent deals to be released publicly and regulators able to investigate unfair dealings would cure this problem. Its not like patents are top secret documents. So why do the sales of patents have to be top secret.

    Patent system was never designed to operate with top secret sales of patents. It was thought when it was invented that no one would do this. So it pure abuse of the patent system.

    Comment by oiaohm | June 4, 2009 | Reply

    • Actually, you are incorrect in your assertion that there is no protection for the two separate people that bought rights to your patent. The patent office has a recordation system for changes in titles and licenses of patents. This recordation system is similar to that found with titles to real property. So if the first buyer of your patent records the assignment (sales contract), the second buyer will have notice of the change in ownership if they perform a search of the recordation database.

      Comment by dbhalling | June 5, 2009 | Reply

  2. “Since a patent does not even given the holder the right to sell their invention, let alone an exclusive right to a market, it is clearly not a monopoly. ” That is implied just like how unless otherwise stated, you can sell any private property. 2+2 does not equal 3.

    Comment by Joe | November 19, 2009 | Reply

  3. Joe, it is not implied, its a statement of law. This is not the same as real property, which gives you the right to use your property. For instance, if I invent a new cellular telephone that uses a microprocess and there is a patent on the microprocessor, I do not have a right to make or use my invention (telephone). In order to make or use my cellular telephone I have to obtain a license, which may be obtained by purchasing the microprocessor from its inventor.

    If I own a car I have a right to use it. This is not the same situation at all. Regardless, property rights are not a monopoly.

    Comment by dbhalling | November 19, 2009 | Reply

    • What is the real difference in between right to exclude and monopoly? What makes not including right to use in monopolies inconsistent?

      Then let’s just call it “de facto monopoly” instead, since it’s not an actual monopoly according to you, but still have exactly the same effect – the ability to force your competitors out of business and counter-suing those who patented sub-parts of what you’ve patented, putting them out of business too if you are bigger.

      Comment by Natanael L | March 6, 2010 | Reply

  4. Nathan,

    Since a patent does not give you the right to make or sell your invention, it cannot be a monopoly. A goverment granted monopoly is the exclusive right to sell a good. A patent is a property right not a monopoly.

    Comment by dbhalling | March 6, 2010 | Reply

    • It’s still *exactly that effect that it has*.

      I guess we have to “agree to disagree” (you won’t ever change your definition, we will never change our definition).

      Comment by Natanael L | March 8, 2010 | Reply

  5. No it does not. There are hundreds or thousands of patents on microprocessors and yet there are several producers of microprocessors. There are thousands of patents on cellular telephones and there are numerous producers of cell phones. There are hundreds if not thousands of other examples. The effect of patents is not to create monopolies in any sense of the word.

    Comment by dbhalling | March 8, 2010 | Reply

    • …

      That’s because those patents either aren’t too broad (unlike that video streaming patent), they are being licensed out (such as in patent pools, which most big companies use) or they aren’t used to sue others.

      But those who wish could easily force their competition out of business.

      Comment by Natanael L | March 8, 2010 | Reply

  6. Nathan, that is not true. The patents are not broad because of the prior art, which is how patents work. Patents can only exclude people from making something that did not exist before. So in no sense is anyone precluded from business they were already conducting. In addition, remember that patents only last 20 years from the date of filing. Since it now takes 4-8 years to obtain a patent this only excludes people from using another’s invention for a very short period of time.

    Comment by dbhalling | March 8, 2010 | Reply

  7. Nathan,

    Do not confuse property rights with monopolies. Property rights give you the right to exclude others (trespass) and in the case of real property rights to occupy, improve, etc. Just because you want to build a shopping mall where my property is does not mean that I have a monopoly over my land.

    In the case of the video streaming patent, people who want to use the patent can either pay a royalty or they can find a design around to the patent. There are numerous ways to stream video. So creating a design around is definitely feasible. Of course, it might be inconvenient to not use the video streaming patent in which case you have decided it is better to pay for the patented technology than design around the patent. This is no different than the case of the shopping mall developer. If he really wants to build a mall where my property is, then he has to pay me enough to make it worth my while to move or build the mall elsewhere.

    Simultaneous invention: It is very rare that two people given the same problem come up with the same solution (invention) or even necessarily overlapping solutions. Most of these cases are purposeful ignorance of other people’s rights. Many companies have a policy of not determining if they are likely to infringe someone else’s patent. I see no reason to excuse other people’s negligence

    Comment by dbhalling | March 8, 2010 | Reply

    • That patent covers sending media from a source to a reciever that can do what a VCR can do. Exactly that.
      How do you desing around THAT!?

      Building a mall on your land makes it impossible for you to us it. Using the same idaes as you doesn’t. It’s more like those people in the 50’s that tried to ban airplanes from flying over their land since they were trespassing…

      http://cm.bell-labs.com/who/ken/trust.html
      “That brings me to Dennis Ritchie. Our collaboration has been a thing of beauty. In the ten years that we have worked together, I can recall only one case of miscoordination of work. On that occasion, I discovered that we both had written the same 20-line assembly language program. I compared the sources and was astounded to find that they matched character-for-character. The result of our work together has been far greater than the work that we each contributed.”

      Now, what was that?

      There’s also more plenty of matematical laws that was named after somebody that discovered it years (decades/centuries) after the initial discoverer, but neither the first person OR HIS WORK was known to the public when teh law was named.
      I can give you examples on request.

      Comment by Natanael L | March 8, 2010 | Reply

  8. Nathan,

    Here is claim 1 of the patent you are concerned about.

    1. A transmission system for providing information to be transmitted to remote locations, the transmission system comprising:

    library means for storing items containing information; identification encoding means for retrieving the information in the items from the library means and for assigning a unique identification code to the retrieved information;

    conversion means, coupled to the identification encoding means, for placing the retrieved information into a predetermined format as formatted data;

    ordering means, coupled to the conversion means, for placing the formatted data into a sequence of addressable data blocks;

    compression means, coupled to the ordering means, for compressing the formatted and sequenced data blocks;

    compressed data storing means, coupled to the data compression means, for storing as files the compressed, sequenced data blocks received from the data compression means with the unique identification code assigned by the identification encoding means; and

    transmitter means, coupled to the compressed data storing means, for sending at least a portion of one of the files to one of the remote locations.

    The fact that the claim uses “means for” language is very limiting. I believe it would be easy to avoid several parts of this claim including the “compressing means”. There are many compression schemes. I do not have the time to analyze this in detail. However, if I had a client who wanted to really get around this patent I would put money on us coming up with a design around in under a week.

    Comment by dbhalling | March 8, 2010 | Reply

    • I can’t figure out how to understand that in any other way then that OGG/Theora-encoded videos on a server would be covered when using them with the HTML5 video tag, and keeping several videos listed in any kind of library like system (I guess a normal file system is enough).
      I doubt it would be enough with a week to get around.

      BTW: If you checked the EFF link, it looks like they got it invalidated.

      Comment by Natanael L | March 9, 2010 | Reply

      • (Hmm, bad grammar. Meant to say that it would be covered as well)

        Comment by Natanael L | March 9, 2010

  9. Nathan, you would have to understand the claims in detail before you attempted to design around the patent. Since this is real work which I normally get paid to undertake, I am unwilling at this point to do so.

    I enjoyed the conversation.

    Comment by dbhalling | March 9, 2010 | Reply


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