Patent monopolies were an instrument during the guild era that regulated how knowledge could pass from master artisans to their apprentices. For some reason, this monopolization on knowledge and brake on innovation has survived into the free enterprise age, after 1850.
Many people have a lot of preconceptions about patent monopolies that aren’t true, just like a lot of people had preconceptions about the necessity of copyright before file sharing became widespread and people experienced it first hand. Most people don’t have first hand experience in patents, so this is an attempt to tackle the most common myths and misconceptions.
Myth 1: Nobody would invent anything if they couldn’t patent it.
Fact: People invent for a lot of reasons. Some people invent because they can. In this, they share a strong drive with artists. But focusing on the commercial innovation, nobody invents because they can patent the innovation. They invent because they can make money on it.
In practically all industries, this money is made from selling products and services relating to or incorporating the innovation. Patents do not sell products and are, for the most part, granted long after the related product is so old it is obsolete and no longer generating money.
If companies did not innovate, they would lose the ability to sell products, and therefore lose the ability to make money. This is much more relevant than the ability to patent something.
Myth 2: Patents drive innovation.
Fact: Patents do not drive innovation, they ban innovation. A patent is, by its very definition, something that bans the entire world except the patent holder from building and improving on a particular innovative step. If patents are driving innovation, which is claimed, then this outright ban must be shown to have side effects that somehow drive innovation to a larger extent than the extent to which the direct ban destroys it. No such side effects have turned out to exist.
To the contrary, patents are being used by incumbent industries to shut down disruptive competition. Rather than competing with better products and services, the current kings-of-the-hill are finding it more cost efficient competing with more expensive lawyers. This does neither drive innovation nor a healthy competitive market.
Myth 3: Nobody would invest in startups that don’t have patents.
Fact: The seasoned startup investors absolutely hate patents and the entire patent system. They compare it to a cancer in the economy. As soon as a company has any money at all, it will be sued for patent infringement on pure speculation. These purely speculative patent threats have been estimated to burn about 10% of all investment capital today.
Myth 4: Patents are good and useful as a measure of innovation.
Fact: This is the broken window fallacy. To measure innovation in terms of how many innovative steps have been stopped by legal means for the duration of a patent — usually 20 years — is just not dysfunctional, it deserves a whole array of psychological disorder diagnoses.
Just because you can get a number on something doesn’t mean it can be used as a measure. Particularly not so if the number is a quantitative measure of bans on innovation, and you are trying to use it as a measure for innovation potential.
Myth 5: The patent system derailed just recently with the advent of the patent troll. Patents can be brought back on track if the troll problem is dealt with.
Fact: Patents have always been a brake on innovation. Lately, the pace of ideas have picked up, and so the problem has become more obvious — but it has always been there. The Industrial Revolution was delayed 30 years because of Watt’s patent on the steam engine (and people who improved it were even put in jail). The flight industry was delayed 25 years because of patent wars. Broadcast radio was delayed by ten years twice — first when it arrived in the 1920s, and a second time when FM radio arrived.
Myth 6: Patents protect the small, poor inventor against exploitation by ruthless big corporations.
Fact: A patent is only worth as much as you can spend on a lawsuit defending it. A small, poor inventor can’t even afford the application cost of €50,000 (average, including legal advice) for a European patent. That doesn’t even grant the patent, it’s just the application. Then, they will have to defend the patent in lawsuits against huge corporations, where one single patent lawsuit easily can (and typically does) run into millions of dollars in costs for each side. It’s plainly a joke that a small player can play in the patent arena, and it only offers protection for big players against small entrepreneurs.
Small and medium-sized businesses are increasingly shying away from patents, and politicians tend to see this as a problem, rather than considering the possibility that entrepreneurs have understood something that the politicians haven’t.
Myth 7: Patents disclose innovations – the alternative would be trade secrets.
Fact: This is wrong on both accounts. First, the trade secrets and critical know-how today lie in the manufacturing process, and very rarely in the finished product, which can be patented. Second, have you ever read a patent? Its language is so convoluted that it is absolutely impossible to comprehend for a normal engineer skilled in the applicable domain. This is also what has led us to at least ten overlapping patents on common things like network plugs. Third, trade secrets are not bad. It is part of normal healthy competition to try to gain the upper hand over your competitor (and is something that the government should not interfere with).
Myth 8: Patents are good for the economy — just look at all the licensing going on.
Fact: The entire patent system is draining resources from all corporations, if nothing else because it is a balance of terror. You need a patent portfolio for yourself in order to avoid patent lawsuits from others: you need the capability to countersue to avoid the lawsuits in the first place. Many corporations have a stated policy of never using patents offensively. The whole system has become a quagmire that sucks resources out of research and development.
When an entrepreneur chooses to pay a patent license, it has very little to do whether the patent has merit or not. Rather, it is a cynical calculation of whether it is more economical to just cave in to the demands and pay the license, or more economical to go to court and challenge the patent and claim as such. The court option is very rarely the one with the most business sense. Therefore, the system has turned into law-backed extortion. On the other side of the scale, politicians see all the licenses being paid and take this as a sign that the patent system works, when it is a result of extortion against the entrepreneurs that drive our economy.
The only group that consistently gains from the patent system are the patent lawyers. With the exception of one industry, the patent system is a net loss to every single industry.
The one exception is the pharma industry, as they use the monopoly deadweight created by the patent system to tax the public for their own gains. (In Europe, 83% of pharma revenue is tax money, on average.)
Myth 9: Patents can’t be scrapped without being replaced with something else that encourages innovation.
Fact: Patents harm the economy and innovation. It is perfectly possible to remove a strong brake on innovation without needing to insert another brake of a different color. If somebody is banging you repeatedly over the head with a hammer, you have the right to ask them to just stop, without having to simultaneously give them an alternative tool to hit you with.
Myth 10: All practicalities aside, patents are morally justified. You should own what you create.
Fact: It is morally just that you can combine your own pieces of property into new kinds of property, using ideas that you get by yourself. Patents allow somebody else to ban exactly this, just because they thought of the idea independently earlier and managed to fill out some particular forms. This is independent of whether you have even heard of the patent holder. Patents are, therefore, a strong limitation on competition rights and property rights. If you have the right to own what you create, then patents need to go out the window.