State of Innovation

Patents and Innovation Economics

Steve Forbes is Wrong on Patent Pools

In an opinion piece on Fox News entitled “America’s patent system is all wrong for today’s high-tech world”, Mr. Forbes argues that “patent holding entities that do not produce anything in the way of devices or technology are disrupting the free market and stifling innovation for consumers.”  Patent pools were first created during the sewing machine patent wars in the 1850s.  (For more information see Adam Mossoff’s excellent paper The Rise and Fall of the First American Patent Thicket: The Sewing Machine War of the 1850s.[1] )  During the sewing machine wars it was found that overlapping patent rights made it impossible to produce the best sewing machine for the customer.  As a result, a patent pool was created to clear these rights and allow manufactures to produce state of the art sewing machines.  A patent pool is nothing more than a clearing house for people’s rights in their inventions, much like ASCAP works for copyrights.  Patent pools allow for the efficient division of labor between inventors and manufactures and reduce wasteful litigation.  In this sense they are similar to how title insurance works for “real” property.[2]  Patent pools were and are a free market device that allows for the efficient clearing of property rights by contract.  Patent pools combine people’s right to their property with their right to contract.  Both of which are part of a free market.  It is disappointing that Mr. Forbes who styles himself a free market proponent has missed these obvious facts.

Mr. Forbes uses the standard rhetoric of the antitrust laws.  These laws are not part of the free market, and were championed by people who opposed the free market and property rights, such as Teddy Roosevelt.  The FTC’s attack on patent pools and licensing in the 1970s did more damage to the economy than the 911 attackers did.  For more information on the FTC’s traitorous attack on US property rights see Jobs, the Economy and Patents.

 

The article states a number of other fallacies.  For instance, Mr. Forbes repeats the idea that there were too many dubious software patents issued.  Any objective study of this issue has shown that it is nonsense.  For instance, see the paper Of Smart Phone Wars and Software Patent.

The article also asserts that patents that are about to expire necessarily have a lower market value.  First of all the market determines the value of patents, not Mr. Forbes arbitrary dictates.  Second, patents that are older and cover technology on which numerous other inventions are built are more valuable because they are building blocks.  Algebra is not less valuable today than it was when it was discovered, it is more valuable because other areas of math build on that knowledge.

 

Mr. Forbes suggestion in his conclusion that patents are regulations shows a profound ignorance of property rights and the free market.

 

America’s patent system is all wrong for today’s high-tech world

 


[1] My only complaint with Mr. Mossoff paper is that he suggests that a patent thicket existed.  A patent thicket cannot exists in a free market, at least as the term was originally defined.  There are a number of papers on point, if you want a link to them let me know.

[2] Real property in law refers to land and permanent structures.  This is similar to the use of real in math to refer to real numbers.  Imaginary numbers are real in that they exist as do patents, other intellectual property and personal property (Cars, tools, etc.).

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March 18, 2013 - Posted by | -Economics, -Philosophy, Innovation, News, Patents | , ,

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