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.

There is a lot of nonsense in the economic profession about monopolies.  Even the definition above can lead to nonsense.  For instance, according to Locke’s Natural Rights theory you own yourself so you own the product of your labor, both mental and physical.  This means anything you produce you have the exclusive right to make and sell, does this make you a monopolist?

The historical basis for monopolies is the Statute of Monopolies of 1623 in England.  The Statute of Monopolies prohibited the Crown from issuing monopolies for items that were already known or being produced.  The idea was to protect the Natural Rights of Englishmen to practice their craft, in today’s language the government in issuing a monopoly was interfering with private citizens rights to their property.  However, the Statute did not prevent an exclusive grant for inventions.  The reason for this in the words of the day was an invention did not interfere or take away anything from private citizens.  The invention did not exist before it was invented, so it does not take away anything from private citizens to provide a limited term property right to the inventor.

Modern antitrust law has turned the concept of monopolies on their head.  Instead of being a limitation on government power, like the Statute of Monopolies, it is a limitation on private action.  Instead of protecting people’s rights to their property, like the Statute of Monopolies, it limits or takes away private property.  The only logically consistent definition of a monopoly is an exclusive right to a market.  No property right, gives you an exclusive right to a market.  Market success is not an exclusive right to a market.  Only the government can create a monopoly.

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 | , ,

28 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

  10. [...] Rights. This is completely consistent with patents.  For more information, please refer to, The Myth that Patents are a Monopoly: and Scarcity – Does it Prove Intellectual Property is Unjustified? .  The Court would be wise [...]

    Pingback by BILSKI: the Good, the Bad, and the Ugly « State of Innovation | June 29, 2010 | Reply

  11. [...] 9) The book also mistakenly calls a patent a “temporary monopoly.”  A patent is a property right, just like property rights in land, houses, cars, etc.  The logical basis for patents is exactly the same as other property rights.  Property rights are based on Natural Rights, which states that since you own yourself you own the product of your labor (physical and mental).  For more information see The Myth that Patents are Monopolies. [...]

    Pingback by The Rational Optimist: Excellent Book, Disfigured by Open Source Utopianism « State of Innovation | July 22, 2010 | Reply

  12. [...] a product or service.  A patent does not give the holder this right.[1] For more information see The Myth that Patents are Monopoly. The concept of economic rent is a more useful concept than monopoly for analyzing patent law. In [...]

    Pingback by State of Innovation | August 26, 2010 | Reply

  13. Dale – I see the larger point you are going for, but I think that you are presenting it a bit incorrectly. As you state, patents are exclusionary rights; they confer only a right to exclude, rather than rights to make, use, and sell. Many people misunderstand that and assume that a patent awards the patent owner the right to go out and practice the invention.

    However, I think your argument that patents are not a monopoly trades persuasiveness for hyper-technicality. From where does your definition of a monopoly come? I would establish what a monopoly is before arguing what a patent isn’t. And I think it is hard to define a monopoly, formally. Sections I and II of the Sherman Act don’t even use the word “monopoly” as a noun. Your definition of a monopoly carries the “exclusive” term, which conflates a bit with the patent definition: a patent is an exclusive right to make, use, and sell….. These two definitions become very similar, and I don’t see how your argument separates them.

    In the end, it seems to me that you aren’t arguing that a patent is not a monopoly, but that the definition of “monopoly” that you initially propose is not correct. And really, if you are right, what is the harm?

    Thanks – Tom

    Comment by Arizona Patent Attorney | August 27, 2010 | Reply

    • Hi Tom,

      The definition I use for a monopoly is from Wikipedia. Those economists who use the phrase “monopoly power” have to admit that every property right confers some monopoly power. This leads to the nonsense that every property right is a monopoly.

      Historically the concept of monopoly comes from England’s Statute of Monopolies. This statue limited government power, but did not limit private property rights. Patents are private property rights. The statute 35 U.S.C. 261 states patents have the attributes of personal property. The system of recording patents, the ability to license and assign patents, and the nonpolitical process or granting patent rights are the attributes of property. Monopolies (as defined in the Statue of Monopolies) are issued by politicians for markets, not specific embodiments of products. There is no such thing as designing around a monopoly. The Sherman Antitrust Act turned the whole concept of monopolies on its head. The Sherman Antitrust Act limits the ability of private citizens to use private property. This is the exact opposite of the Statute of Monopolies which limited government’s (the crown) power.

      If you use the political language of “monopoly power”, you end up in the absurd situation of suggesting that all private property is monopoly power. I reject this as illogical position as an attempt to destroy private property by Marxists.

      Comment by dbhalling | August 27, 2010 | Reply

      • “If you use the political language of “monopoly power”, you end up in the absurd situation of suggesting that all private property is monopoly power. I reject this as illogical position as an attempt to destroy private property by Marxists.”

        Do you mind if I reject your position as an illogical position by neocapitalists to destroy innovation and freedom?
        Because that’s how I percieve it.

        Patent are only property as long as the humans’ law says it’s so, and it’s all about semantics. In fact, you have to define what you mean by property first as well.

        I think that the only fair description of patents and the like is “exclusivity priviligies”, and that they never shall be treated as property.
        Only something temporary to make it possible for somebody who came up with a great new idea to finance coming up with more great new ideas, for the benefit of the society.

        But patents just don’t work that way in real life.

        Comment by Natanael L | August 28, 2010

  14. Natanael L

    You entitled to you own opinion, but you not entitled to your own facts. All property is a government enforced right to exclude others. All property rights are based the Natural Right that you own yourself so you own product of your labor both mental and physical. Patents just recognize this right, which is why patents and copyrights are defined as “rights” in the US constitution, Article 1, Section 8, Clause 8.

    Comment by dbhalling | August 28, 2010 | Reply

    • The Vatican has a law that says that the pope is infallible (perfect, can’t be wrong). Is he? The law says so!

      Whatever you call it, patents and property are human constructs, not something inherent in nature.
      It is however logical and reasonable that I can, as example, keep what I have made with my own hands and not have it taken away from me, such as if I make a tool to cut wood, and then build something with the wood.

      To restrict the free use of ideas, such as mimicking how somebody else is using their tools, and say that it’s a natural right to do so is stupid (among other very bad things).

      The idea of property is based on the fact that we would be worse of if you could not keep what you have earned fairly by working because somebody who is stronger wants it.

      Far from all property laws are based on this – copyright is rather based on giving authors an *incentive to create more*, while patents are made to give the same incentive as well as to finance further innovation.

      I’d like to repeat your own first sentence, “You entitled to you own opinion, but you not entitled to your own facts”.

      Whoever that has defined patents as “rights” used the wrong word and bad logic, and that is my opinion. It seems like there are no “objective fact” about who of us is right on this particular fact, and I’d love to see you try to prove otherwise.

      Comment by Natanael L | August 28, 2010 | Reply

  15. Nataneal L,

    It was the US founding fathers the word “right” when speaking of patents and copyrights. You are objectively wrong that copyright are based on some societal reward system.

    The word “right” as used herein has an objective definition and it includes the right to your labor. Stealing other people’s idea is just as immoral as stealing someone car and both involve stealing other people’s labor.

    Law is actually divided into natural law and administrative law. Only administrative law is subjective. It is objective that murder is against the law. The murder objectively does not have a greater right to the victim’s life than the victim. And you objectively do not have the right to steal other people’s ideas.

    Comment by dbhalling | August 28, 2010 | Reply

  16. Interesting discussion here. Dale, would you provide a reference for your definition of monopoly?

    Comment by jason | September 1, 2010 | Reply

    • Jason,

      From 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.” http://en.wikipedia.org/wiki/Government-granted_monopoly

      A patent does not exclude competitors from a market, it does not even allow the patent holder to make or sell a product embodying their invention. It is important to distinguish a property right, which in a civil society is a right to exclude and is enforceable at law if the right is not respected, from a monopoly. A property right is earned by a person’s labor (mental or physical) a monopoly is earned by a company’s (person’s) political connections.

      Comment by dbhalling | September 1, 2010 | Reply


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