Against Monopoly

defending the right to innovate

Monopoly corrupts. Absolute monopoly corrupts absolutely.

Copyright Notice: We don't think much of copyright, so you can do what you want with the content on this blog. Of course we are hungry for publicity, so we would be pleased if you avoided plagiarism and gave us credit for what we have written. We encourage you not to impose copyright restrictions on your "derivative" works, but we won't try to stop you. For the legally or statist minded, you can consider yourself subject to a Creative Commons Attribution License.

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How the Most Successful Patent Troll Does It

The New York Times goes after patent trolls in a long review in the Sunday paper link here. Its author, David Segal, thinks he has found the worst offender, Erich Spangenberg, whose company, IPNav, even has a classy website, link here on which it claims to have "Monetized to date: $610,549,103" and makes its sales pitch to existing and prospective clients.

It is at the top of the list of patent trolls, ranked according to the number of defendants added to their suits from 2008-2012. The total number of patent infringement suits (in litigation?) has jumped from 2304 in 2009 to 4731 in 2012. One estimate of the costs of these suits was 29 billion in 2011. Only $6 billion went to inventors, with the balance going to lawyers and the trolls themselves as expenses and profits.

The article has a lot of details on how IPNAV operates, some of which have gotten it in trouble with the law, but so far it has escaped using lots of money and legal talent. But the bottom line is that it is a huge tax on innovation and on consumers with no redeeming features. The question is how long the U.S. or the patent system survives.

Another bad patent--guaranteeing more litigation

Bad patents are an old story, but they keep getting worse. This one is granted for "displaying pictures of athletes on the fields on which their sport is played" link here.

Timothy, in whose name the story is posted at Slashdot.org, sends you to the patent itself, a master piece of overblown legalism and hucksterism link here. Google, to which the patent is granted, should be deeply ashamed. Timothy comments, "Just about anyone that's familiar with sports has seen position and depth charts, in which athletes are portrayed on the athletic fields their sport is played on."

Does the decline in total factor productivity explain the drop in innovation?

In a long post, Mike Masnick calls attention to an e-book by Alex Tabarrok which focuses on the decline in total factor productivity as a measure of the drop in innovation link here. This has occurred despite the huge increase in the number of patents. He concludes that the patent system is broken and suggests some fixes like a mix of patents, some short-term and easy to get and others, long-term and less likely to be granted. Read and ponder.

And then think about the political and economic power of those who oppose such reforms.

Les patent trolls ne sont pas toujours des officines

Bilan takes them on...if you read French.

Patents on 3D Printing Challenged by Prior Art

Mike Masnick lets go with a strong blast on patents because they may yet again cripple innovation in 3D printing link here. As he writes, "One of the reasons 3D printing is suddenly on the cusp of going mainstream is the expiration of some key patents that have held the technology back for decades."

The really hopeful feature of his post is that the Electronic Frontier Foundation (EFF) is opposing some recent patent applications, based on the discovery of prior art. The story gets better as the EFF has successfully appealed to crowd-sourcing to find evidence of such prior art. Unfortunately, the Patent Office still can't seem to find much of this.

Mike's enthusiasm about the changes that 3D printing may make for manufacturing, new product design, and a growth in the competitive strength of small enterprise have yet to be proved. Still, it should be clear to most people that we suffer from a world of business monopoly based on laws which convey privilege to large enterprise with wealth to buy political support for favorable legislation.

Here's hoping.

Maybe generic drug makers will be sueable

In a highly speculative piece the New York Times suggests that a possible change in labeling requirements risks generic drug makers being sued link here. This comes just two years after the Supremes decided the reverse i.e., that they couldn't be sued as the law required they use the same warning label as the brand-name makers (see our piece posted on 06/26/2013 at 08:40 AM.

Apparently the change is prompted by the FDA's discovery that users harmed by a generic drug should be able to sue if their drug fails to perform correctly.

This all seems a stretch. The warning labels are framed based on what is known at the time it is approved. Subsequent experience could quite reasonably have shown the need for amending approved uses and thus, labeling. Like most of us, when the facts change, the FDA changes its opinion or so we can hope.

Patented Drug Turns to Gold (With lots of Government Help)

Steve Rattner has a provocative op-ed in the NYTimes today link here. It focuses on a drug maker, Jazz Pharmaceuticals, which has found ways to make a "nothing" enterprise into a gold mine.

The company makes an orphan drug (one defined in law as a treatment for a condition affecting fewer than 200,000 people). It gets a 50 percent research-&-development tax rate and 7 (vice 5 years for other drugs) of market monopoly after FDA approval. Jazz raised the price so that a year's treatment costs $65,000 nominally, but then subsidizes the co-payments above $35 a month (essentially a price cut for those with health insurance). In any case, the company has proved to be enormously profitable, importantly by putting its patents in a subsidiary abroad where they are taxed very little. Indeed, total profits are currently reported to be 49 percent of sales.

The question for Jazz now becomes whether competitors will be induced to compete, lowering prices, once the 7-year tax cut expires. Price competition seems unlikely, since it currently has only 10,500 customers and a competitor would have to gamble that it can take market share from Jazz.

Question for taxpayers: how long will this ripoff continue?

Press coverage of patent trolls has been rare.

The New York Times went some way last week to remedy that link here.

First, it notes that the chairwoman of the FTC is expected to recommend an investigation of patent trolls (or "frivolous patent lawsuits" as specified in the headline). The promised further action has not been confirmed, so we will have to wait and see.

The Times then slid around the "patent troll" name and henceforth called them by the less pejorative "patent-assertion entity" or PAE. Still, adding some weight to the promise of action was the "several executive orders" from President Obama "directing executive agencies to take steps to take steps to 'protect innovators from frivolous litigation.'"

The article goes on to describe patent trolls as typically having no operations other than collecting royalties on patents and says that they accounted for more than 60 percent of the roughly 4,000 patent lawsuits filed last year, up from 29 percent two years earlier.

But then the article notes one company that calls itself a "patent-licensing company," raising the question of "what's in a name".

In any case, the Times expects the full commission (two Democrats and two Republicans, with one seat empty), to approve a study.

The article identifies two kinds of troll: Little (poor?) ones that sue for amounts smaller than the expected cost of litigation. "At the other end are large companies like Mosaid, which has its American headquarters in Plano, Tex., and Intellectual Ventures, a Bellevue, Wash., firm that was co-founded by Nathan Myhrvold, a former chief technology officer at Microsoft. Both may be little more than collection agents for big patent owners like Microsoft which thus preserve their public persona as innovators working in the public interest.

Those entities buy portfolios of intellectual property rights from technology innovators like Microsoft and Nokia and use them to generate millions of dollars in licensing payments. The big ones are able to finance suits for large amounts over extended periods with lots of potential licensees. Both would seem to raise questions about the anti-competitive nature of their activities and the cost to consumers.

According to the head of the FTC, the makers of smartphones are an example of the monster class as a single design "could be subject to tens of thousands of patents."

What to do? Push for the study and its likely negative conclusion, but don't expect any action soon. Patent owners and patent lawyers will be watching, ready to pay for inaction.

Are patents and copyrights still constitutional?

Challenges to the effectiveness of patents and copyrights as a reward to their creator are being raised with growing frequency. Alex Tabarrok does so today link here

“.... economist, Alex Tabarrok of George Mason University, last year drew a similar curve on a virtual napkin to argue that, beyond a certain point, greater protection for intellectual property causes less innovation. He thinks that U.S. patent law is well beyond that optimal point.” That is, the returns from patents and copyrights are diminishing rather than growing and ultimately can only become a disincentive to innovation.

One piece of evidence that they are already negative is the frequency of patent disputes and the cost of prosecuting or defending them. The law journals are full of such reports, including their huge financial costs.

By their very existence, such costs become a powerful disincentive to investment in producing something new as the threat of litigation becomes an additional hard-to-estimate source of uncertainty.

That this is not a trivial matter in law is the fact that the constitution states that patents and copyrights are justified “to promote the Progress of Science and useful Arts.” If they are not doing that, they are unconstitutional.

Welcome to another blogger questioning intellectual property law

Felix Salmon has an engaging blog on how the world benefits from Chinese piracy link here. His argument is simple; we benefit from cheap imports that seem to be copies (good or not so good but serving the same purpose) of something we also make. The article takes off from a Foreign Affairs piece, entitled Fake It Til You Make It link here whose argument is that we all benefit. We get cheap imports and cheaper domestic manufactures, they get cheap goods and the foreign exchange to buy competitive imports. And the competition forces the pace of innovation both at home and abroad, a process that seems to have slowed.

This is one of many (well, an increasing number of) blogs that challenge the presumed benefits from patents and copyrights and seek to increase competition and innovation. Ultimately, this seems to present a growing challenge to the laws which no longer seem to promote competition and innovation, instead slowing them. Just as important has been the growth of law suits that rarely help the consumer but do add to the costs to pay for expensive lawyers and long legal processes.

It is really nice to have other bloggers sharing this conclusion.

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