Rarely does The Economist run an editorial that is ill-conceived or hastily written. Even when one disagrees with its conclusions, it usually lays out a strong case and pre-empts many possible critiques of its position. With last month’s leader, Time to Fix Patents, in which it argues that “ideas fuel the economy” but patents “are a rotten way of rewarding them”. And on this subject, it’s not the first time.
I do not criticise the newspaper – it insists it is not a magazine – lightly. I have long held The Economist in high esteem. Among the books that most shaped my thoughts and opinions, I often list The Pursuit of Reason, the magnificent history written on the occasion of the paper’s 150th anniversary in 1993 by Ruth Dudley Edwards. Since 1843, the newspaper has expounded the unfairness and harmful effects of taxes, tariffs and other bureaucratic barriers to global trade. With a strong emphasis on individual liberty, property rights and free exchange, it strongly shaped the world’s economy as it made its tortuous way through the upheavals of industrial revolution, colonialism and mercantilism, to emerge into the relative freedom of the modern information age. Throughout that time, the rights and freedoms the newspaper’s founders held dear had to be described, justified, explained and defended, ever grounded upon a strong and consistent philosophical foundation. The Economist set a standard for opinion writing that inspired me as a columnist.
Its recent piece on patents, however, falls far short of that standard. As the newspaper has done before, it pointed to what appears to be an obvious issue: that the patent system, particularly in the US but also globally, is often abused and may need reform. But it fails to explain how exactly the patent system fails, nor does it propose substantial remedies for perceived problems. In its past coverage, it has been remarkably inconsistent, advocating both for a stricter, more rigorous approach to issuing patents, as well as for issuing patents more quickly.
Patents are typically administered by a government patent office, at which patent examiners test applications against a set of patentability criteria, which include the existence of a named inventor, novelty (that is, there is no ‘prior art’), the presence of an inventive step that is non-obvious to someone skilled in the art, and usefulness. If a patent application passes these tests, the inventor is awarded a time-limited exclusive right – usually between five and 20 years – to use the invention described in the patent, and may require others to obtain a licence to use the invention.
The purpose of patents is not only to allow inventors to profit from the intellectual resources, time and materials invested in creating their invention, and so incentivise innovation, but also to reward inventors for publishing their work instead of keeping trade secrets, so that others can build on this knowledge, thus stimulating industrial development.
Much as title deeds do for land, the property right so established in law can be bought, valued and sold just like any other asset. This enables inventors who lack the resources to develop a product and bring it to market to benefit from their innovation. In the US, the majority of patent holders have always been so-called ‘non-practising entities’, who merely license their patents to companies with the resources to commercialise them.
The Economist is correct to point out that there are many examples of patents granted that are over broad, not innovative, not useful, or patently obvious (go ahead, groan). This has led to much acrimonious and expensive litigation, including so-called trolling by companies specialising in little other than acquiring patents they can use against other companies in civil lawsuits. In some cases, this has undoubtedly led to unnecessary costs to consumers, or stifling rather than promoting innovation, but it is not at all clear that this is the general case.
In particular, the sole apparent distinction between a ‘non-practicing entity’ and a ‘patent troll’ is one of public perception. It is a myth that owners of patents who do not bring the idea to market are somehow hindering innovation or economic growth.
The software industry is infamous for its examples of patents that are objectionable on the grounds that they are not innovative. Patents exist on such underwhelming inventions as Amazon’s one-click checkout, pull-to-refresh (Twitter), in-app purchases (an infamous patent troll, Lodsys), re-arranging icons on a desktop (Apple), swipe-to-unlock (Apple, twice), and object-oriented graphical user interfaces (Apple, which was not the inventor, and only filed for a patent in 1995). In 2002, British Telecom discovered it owned a 25-year-old patent that could be interpreted as a description of hyperlinks, and promptly sued the entire internet for clicking links. It failed, as it should have. The patent system worked just fine.
A number of major patent lawsuits have made headlines over the years, but they are notable more by their rarity than their frequency. Chip-maker Intel paid a total of $675-million to Intergraph, a now forgotten maker of 32-bit RISC processors, which had embroiled it in lawsuits between 1997 and 2004 over the claimed use of some of its technology. Analysts at the time held that the claims were likely valid, but advocates of patent reform pointed out that the amount paid over in an effort to shield Intel’s major customers from litigation was more than anyone had ever made using the technology in question.
In 2006, a little-known company going by the name NTP sued Blackberry maker RIM, and won $668 million by threatening it with a court injuction to shut down the entire service. The panic that ensued on from Wall St. to Washington D.C., where everyone was well addicted to their “Crackberries”, bore no relation to the merits of the case.
A consortium owned by Apple, Microsoft, Sony and others joined the ranks of patent trolls in 2013 when they sued Google and Android handset makers. The consortium had only a couple of dozen employees and had never invented anything, but it held more than 6,000 patents bought for $4.5-billion from bankrupt networking firm Nortel in 2011. “Pretty much anyone out there is infringing,” the consortium’s CEO reportedly said at the time.
After Google and others settled (Cisco alone forked over $188-million), some 2,000 of the patents were transferred to the consortium members, and the remainder sold on for $900-million to a “patent risk management” company, RPX.
There is a good argument to be made that all software is essentially mathematics, and because mathematics is not patentable, software should not be patentable either. However, the much-maligned US software industry, in which patents have allegedly been so open to abuse, accounts for eight of the world’s 10 largest software firms, and 18 of the top 25. That’s hardly evidence of a crisis in innovation.
Patents that are harmful or downright bizarre are not limited to software. It is hard to pick a ‘worst of’ list, but there’s a patent on licking a stamp which surely violates the novelty criterion. There’s a patent on a device for catching cow farts, which cannot conceivably be described as useful. There are several patents on baby burp bibs, which isn’t exactly non-obvious to those skilled in the arcane art of baby burping. There’s a patent on a slight change in how 10-pin bowling is scored, which hardly seems to involve an inventive step. There are several patents that describe how to exercise a cat or other pet using a laser pointer, demonstrating that patent examiners are nothing if not consistent in their lack of critical assessment of patents.
One pending patent, not yet granted, is too funny not to mention: in 2008 US energy services firm Halliburton applied for a patent on “Patent Acquisition and Assertion By a (Non-inventor) First Party Against a Second Party”. That is, they are trying to patent ‘patent trolling’.
There surely are problems with patents, but The Economist doesn’t even point the finger in the right direction. It says that “inventions depend on earlier creative advances”, citing jazz’s origins in blues and the iPhone’s dependence upon touchscreens as examples. But music is not subject to patents at all, and patents covering touchscreens did not prevent the invention of the iPhone, the development of competing devices, or major technology improvements to touchscreens themselves.
The paper’s editorial was apparently motivated by a secretive and wide-ranging trade pact, the Trans-Pacific Partnership (TPP), currently under negotiation among the US, Japan, Australia, Peru, Malaysia, Vietnam, New Zealand, Chile, Singapore, Canada, Mexico, and Brunei. Though it covers about 40% of the global economy, this supposed ‘free trade’ agreement harks back to the days of colonial mercantilism by excluding the second-largest economy in the region (and indeed the world), China. A similarly secretive treaty, the Transatlantic Trade and Investment Partnership, is under negotiation between the US and the European Union.
These treaties are designed, in part, to promote the enforcement of intellectual property rights, including patents. It is critical that newspapers try to bust the lack of transparency of these negotiations, and report on these treaties. They contain significant shortcomings and present major dangers. (The Electronic Frontier Foundation has a good overview of the troubling features of the precedent-setting TPP treaty.)
However, problems related to intellectual property law cooperation have much more to do with the obligations multinational treaties impose on member countries than they do with the merits of the status quo on patent rights. These obligations risk reducing individual and commercial privacy, creating unjust intermediary culpability, criminalising even non-commercial intellectual property use, requiring technical enforcement fraught with unintended consequences, imposing restrictions related to trade secrets that would materially limit free speech, preventing fair use of copyright work, and undermining basic rights to due process. All of these are very serious issues, and the lack of transparency about the negotiations hardly fills one with faith in the negotiating governments. However, none of them scream, “Patent reform now!”
The Economist leader claims evidence that patents stimulate innovation is “surprisingly weak”, referring to a lengthier cover story with some citations, notably a 2012 paper published by the Federal Reserve Bank of St Louis. But “weak evidence” is not no evidence, and it certainly is not evidence to the contrary. The paper on which the editorial relies is comprehensively rebutted by historical evidence presented in a 2013 paper by B Zorina Khan for the US National Bureau of Economic Research.
The newspaper duly excepts medicine from its claim about weak evidence, which is a pretty big exception. It further hedges its conclusion with another major concession: “This is not to say that patents offer no genuine benefits, especially to parties with little access to capital but some ideas.”
But these significant benefits, The Economist feels, are undermined by the difficulty in measuring whether patent rights actually did increase the rate of innovation, by comparison with some imagined alternative future or some idealised past.
It is a trivial truism to suggest that patent holders and patent lawyers are unanimous in their desire to see patent rights strengthened, lengthened, and strongly enforced. Of course they do.
It is circular reasoning to note that patent applications in technology followed innovation, rather than preceding it. That stands to reason. You can hardly patent an invention you haven’t invented yet.
It is downright baffling to assert: “The cost of the innovation that never takes place because of the flawed patent system is incalculable.” Perhaps the editorial worthies of the esteemed The Economist should try to calculate this cost before raising it as evidence of some sort of crisis.
The Economist cites a peculiarly specific instance in support of its notion that patents are of less benefit than its advocates imagine, namely wheat yields since patent protection was extended to agricultural technology in the 1970s and 1980s. It is at least arguable that if it weren’t for patents spurring investment in biotechnology, the growth in crop yields would have slowed from the high base established by the introduction of chemical fertiliser and mechanisation. Either way, wheat is a startlingly limited cherry to pick (if you’ll excuse the malapropism).
In sharp contrast to its anecdotes, The Economist omits some very relevant information. The perceived explosion in patent litigation of recent years is entirely mythical, for example. The industrial revolution did not steam ahead unburdened by patent speculators and patent lawyers, and the patent system in the 19th century was no less litigious that it is today.
Famous patent wars that caught the public imagination and prompted calls for patent reform were fought over electricity (notably involving George Westinghouse, Thomas Edison and Nikola Tesla), telephones (notably between Alexander Graham Bell and Elisha Gray), automobiles (notably between Henry Ford and George B Selden), radio (again involving Tesla, this time against Guglielmo Marconi) and television (notably between Vladimir Zworykin and Philo Farnsworth). The profession of patent lawyer has long been lucrative.
Wikipedia lists 104 patent infringement lawsuits between 2009 and 2015 in the so-called smartphone patent wars. By contrast, the telephone patent wars of the late 19th century saw 587 cases litigated by the American Bell Telephone Company and its successor, AT&T, alone.
“Data on patents granted, litigation rates over the past two centuries, and the role of non-practising entities, indicate that these features of the current market in intellectual property are hardly anomalous,” Khan wrote in her paper about the economic history of patents. “Indeed, they have been inherently associated with disruptive technologies that transformed the United States into the world leader in industrial and economic growth.”
The Economist’s leader moves on from citing anecdotal evidence to stating some fairly trite objectives for reform: simplify patent law, strengthen the non-obviousness requirement, shorten the duration of patents especially in fast-moving sectors like technology, implement a ‘use it or lose it’ rule, establish a specialised court to deal with patent claims, and “rout the trolls and blockers”.
The problem is that it fails to justify half these proposals, and fails to show how to achieve the other half. “Time to fix it,” is hardly the useful contribution to the debate one might expect from The Economist.
One reason apparently outrageous patents exist is that in early British law, patents were holdovers of monopolies declared by royal decree, and were not examined for merit at all. In US law, a patent application had to pass patent examiners, who may determine reasons why it should not be granted. This was an improvement on the British law of the time, and US inventors were hailed not as monopolists, but as public benefactors. However, overworked and unmotivated bureaucrats, less expert in the industrial arts than the applicants whose inventive merits they must judge, have little reason to exert themselves to block patents. And unless someone brings a court case and presents evidence to the contrary, a patent, once granted, is presumed valid.
The upshot is that patents are established by default, and many are issued for trivial inventions or on uncritically accepted claims. Patents have never been limited to inventions that are useful, novel and non-obvious to someone skilled in the art.
Patent lawyers, of course, love this state of affairs. In fact, they’ve established an entire industry, complete with their own pet courts, to profit from the vast volumes of vexing verbiage contained in millions of patents. There’s a reason patent trolls go to Texas, or to Mannheim, Germany, with their patent claims.
The Economist’s proposal that a specialist court be established to deal with patent claims is superfluous. In the Texas courts and the US Court of Appeals for the Federal Circuit, it already exists. It is infested with career patent attorneys, playing plaintiff, respondent and eventually judge. In fact, the entire notion that you can patent software and business processes, which is limited to the US, was cooked up, for better or for worse, by these courts in the 1990s. They do not exist in statutory law.
The Economist has been both superficial and inconsistent in its coverage of the supposed patent controversy. It failed to establish that there is a great patent crisis that requires a wholesale rethinking of the idea, and its patent reform proposals are vague and naïve.
Sure, patent examiners have issued notoriously bad patents, and there are good arguments for considering patents on ideas such as business rules or software algorithms to be non-patentable. Perhaps rules could be introduced to make it easier and less expensive to challenge a patent, once awarded, by providing proof of prior art or expert testimony of its obviousness to those skilled in the field. It might be worth introducing independent inventor or prior user defences against claims of patent infringement. That would go a long way towards reducing the number of frivolous or outright ridiculous patents on the books, while keeping unnecessary lawsuits to a minimum. And few people have ever argued against the idea of improving the performance of government bureaucrats and expecting that they uphold the standards the law sets.
But to rashly claim that patents are “a rotten way of rewarding” ideas goes far beyond the supporting evidence The Economist provided. DM
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