In Defence Of Patents

Here's the best defence of the patent system I've read for a while. It is written by US patent attorney Gene Quinn, and is in response to various arguments that patents stifle invention. Quinn’s defence is a shameless and proud defence of the capitalist system that rewards effort and innovation.

For a taste of the anti-patent sentiment Quinn is responding to take a look at the anti-IP site Against Monopoly.

One of the most strident critics of the patent system is Stephen Kinsella, a patent attorney (I kid you not). Kinsella and his supporters say the patent system encourages “Horizontal Innovation”, as opposed to “Vertical Innovation”.

Horizontal innovation supposedly occurs when someone develops a parallel technology, usually to avoid patent infringement. Vertical innovation occurs when a technology is built on top of another technology, usually by adding a new element to it. The argument goes that the patent system promotes horizontal innovation, because vertical innovations cannot be used or exploited without infringing the patent rights held by the owner of the original technology improved. This supposedly stifles most innovation, which is incremental in nature.

Quinn’s response to this theory:

Never mind that the thesis ignores reality and that those with a sophisticated understanding of patent laws and a strategy understand that companies build on patented technology constantly, and that is in and of itself a strategy, and a wise one at that. Never mind that blocking patents exist in every technology and that causes fragility of a patent portfolio and causes every company to continue the invention march or risk obscurity. See, when you ignore facts and what actually happens such a thesis makes perfect sense.

He also identifies the real reason why the patent system works so well:

Because of greed individuals, investors and companies will devote substantial amounts of time, energy and funding to come up with whatever is next, whatever is better and whatever will make them money. If we don’t want a patent system and we still want the jobs innovation creates, the lifestyle advances that innovation creates and the life-saving drugs and treatments that innovation creates we need to dig deep into the greed gene and exploit it.

And a happy admission:

Patents dig deep into the greed gene.

That is why a capitalist system works better than all the others. If you reward people for their efforts they’ll work harder and create wealth. Innovation is spurred by reward. And the exclusivity given by patents is the reward.

Much of the anti-patent sentiment feeds on paranoiac distrust and hatred of drug companies, who supposedly make enormous profits at the expense of the sick and poor. The truth is another matter, however. Most big drug companies are in major financial trouble and the current business model they run is not sustainable. You may complain about the cost of drugs, but bear in mind that for every one successful drug a pharmaceutical company releases, it has probably had 50-100 flops: projects that didn’t make clinical trials, or that failed during those trials. Getting a drug through the clinical trial phase usually costs tens of millions. So when something actually works they have to make sure they recoup the money lost on all the other projects. Most struggle to do so.

Without patents there would be very little pharmaceutical innovation, and many fewer new drugs. The costs to bring a new drug to market are extraordinary, as are the risks, and most taxpayers wouldn’t be prepared to allow their Government to gamble their dollars in that manner. Numerous “generic” drug companies exist, their very purpose being to market and sell off-patent products. So if you’re the CEO of a Pharma and your patent attorneys say you can’t have a patent for the new wonder-drug you’re developing, you’ll almost certainly drop the development project. Because why spend billions to develop something that the generics will just start mass producing as soon as it’s released?

Proponents of a utopian patent-free world will mostly admit innovation may slow down in some fields if we do away with patents. They argue that it is a worthwhile price to pay. Quinn responds:

How many folks with incurable diseases think that we should wait for innovation and if it happens slower, oh well. At least when it happens it will be free. And how many people really believe that there are altruistic multi-billionaires who are willing to invest a cool billion or so for a single new drug or biologic that may never reach the market? For crying out loud the ACLU is suing Myriad Genetics to invalidate their patents so that the tests they perform can be performed by others. No mention of the fact that if that happens no one in their right mind will ever develop those kinds of tests, and drugs and medical advances will come to a screeching halt. There simply are not enough folks with free time on their hands, no need for income and billions of disposable income to promote a utopian agenda where innovations are free to be stolen as a result of the fictitious and absurd. Without a greed motivated patent system we won’t get the same level of innovation unless the government is willing to raise taxes by an extraordinary level to take the place of the trillions of dollars spend on the chase for the brass invention/patent ring.

Most patent attorneys will craft the claims of a patent application carefully, to avoid the prior art and to ensure the scope of the monopoly is as wide as reasonably possible. This is a skillful business, requiring much technical knowledge of the invention the subject of the application. But despite all of the care that goes into drafting claims, the protection available to a patentholder will always be limited. Patents provide monopoly protection, but the scope of that monopoly will always be limited. As Quinn explains:

Whether you like it or not, patents are barriers to entry. If you see it as an insurmountable hurdle then we ought not care about your point of view, because you clearly don’t understand the incentive structure. Patents are fragile, easy to get around and susceptible to paradigm shifts in technology, generational advances and being blocked by even a modest innovation patented by another. That is why innovators need to continue to push the envelope and continue to obtain exclusive rights, otherwise even the best technology or patent portfolio will be inadequate.

Quinn goes as far as to say much of the anti-patent analysis is plain lazy:

We all know that the anti-patent crowd takes one look at the title of the patent, maybe a look at a drawing and if they are really energetic they read the Abstract. After that sum of due diligence they throw up their hands and say that they can’t innovate around the patent and the patent is standing in the way of a hard working honest company from expanding or competing. No, no and no! The patent is standing in the way of an ignorant, lazy, under achieving individuals and organizations that doesn’t care enough to educate themselves. No company like that will ever succeed, even if there were no patent system at all.

And:

The march of innovation depends on the ambitious, not those so lazy they can’t read more than the face page of a patent.

I may be biased, of course. I work with IP, and would be out of a job if all innovation was free. But I also believe in a system that rewards effort and innovation. If you make something free to all, you provide no incentive for someone to spend millions on R&D. Why spend all that money when your competitors can ride on the back of your efforts and then undercut you? After all, they don’t have the R&D costs to recoup.

That’s not to say all our IP laws are fine and dandy and don’t need to be challenged. That’s clearly not the case with our copyright laws, which continue to struggle with the challenges posed by new technologies. These challenges may eventually see a paradigm shift in the way we deal with copyright issues. But the economic benefits of patents are difficult to argue against.