NPR's Planet Money on patents


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Can’t listen at work, but I read the synopsis.

There’s this long-standing mythology about the lone inventor in his garage shouting, “Eureka!” Then he goes and beards the CEO of Spacely Sprockets and retires young. I wonder if it’s ever actually true today? Was it ever true in the past? Did Edison just make that up himself to cover his egregious appropriation of I.P?

They seem to have left out an important part of the equation. In addition to protecting the inventor (which is of questionable value to the public), and arguably incentivizing invention (which, assuming it’s true, is of great value to the public), they require disclosure of the patented material to the public (which is of immense value to the public). If Bob Inventor comes up with a truly new, truly useful, and truly nonobvious process for, say, producing a medicine that cures the common cold, he can protect his invention one of two ways: he can keep it a secret and monopolize the production of the medicine, or he can obtain a patent over it. If he obtains a patent, he is required by law to disclose his entire method to the public–so that, when his 20 years are up, any person of skill in the art can use his invention. Absent the patent system, he has no incentive to make his invention public.

This isn’t, in itself, enough to justify the abuses the patent system subjects people to. Maybe we’re confident enough in our reverse-engineering capabilities to think this isn’t an important concern, or at least not as important a concern as it once was. But the guys on this podcast seem to be ignoring the argument completely, which makes their conclusion a little hard to swallow.

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You’re right, and one of the key elements of having a patent is saying “I don’t care if you reverse engineer my thing or happen to have invented it at the same time – I was first, and I get to enjoy profits for the next 15-30 years.” At which time, if there were no other competitors or inventors, anyone could swoop in and copy your thing because you made it public. It’s an upside – guaranteed return for a period of time – for a downside – exposing it to the public in a way that explains the process.

I would also say, though, that there are a fair number of junk patents that are for things that are not really replicable, or are otherwise “common sense,” that only exist for lawsuit use. Exposing it to the public does not benefit to the public, and it’s one of the reasons there’s a lot of furor over software patents and other highly technical patents – not technical in a scientific way, but technical in a “patent lawyer couldn’t decipher it so it gets a free pass to become a patent” way.

Absolutely. More than a fair number, in fact–possibly even a sizeable majority of patents.

I’m glad they focused on the pharmaceutical industry as a problematic field for abolishing patents, but as someone who works in said industry it’s always disheartening to see how little economists and other policy makers know about how it actually works. The idea that the government could take over all preclinical drug discovery work (and, paraphrasing the economist in the interview, that “the government already does a lot of that work and already picks the winners and losers”) is quite frankly ludicrous. Besides the fact that they are basically recommending nationalizing the entire industry, I doubt taxpayers would have the stomach to subsidize the billions upon billions of dollars that are needed for preclinical R&D, 95% of which would be flushed down the drain (don’t forget, >90% of drugs fail in the clinic), especially since the government would then have to figure out how to price the successful drugs. Will the government price them to make back their investment? Sounds like a political nightmare to me. The patent system is absolutely vital to the pharmaceutical industry since the amount of sunk costs inherent in the R&D process is so astronomically large.


Three issues:

Exclusive rights versus remuneration

The problem with creating a new industry like aviation and electric cars is exclusive rights, not that the patent holders get paid. A key quote early in the Planet Money podcast is at ~4:45 when they talk about the way patent holders get paid, “if anyone wants to use your wing design, they have to get your permission, pay you some money”. The “get your permission” gets glossed over. The piece doesn’t distinguish between “grant permission” and “get paid”. That’s a key problem because not only do giant, sclerotic multinationals hold back innovation to fit with their marketing plans, startups don’t even try to compete (the goal is a buyout) and individuals are deterred from pursuing ideas because IP law is (for innovators, not lawyers) a giant pain in the ass.

So not only do you have to fight with lawyers (and pay them) in order to innovate, there’s a very good chance that unless you are lashed to the prow of a multinational you’ll never get to participate in the eventual product design anyway. So innovation is no fun unless you are already an IP lawyer. And by lawyer, I mean troll. So after innovating, in order to get paid or even make anything, you don’t get to be an engineer any more. You don’t even get to be in business in the sense of managing people and paying attention to the books, instead you have to do rigorous microeconomic analysis of markets to figure out how to extract all the consumer surplus out of the market you can. So the consumers don’t end up benefiting much from innovation until after you lose your IP rights, but in the meantime you have new patents which continue your market control. It’s the rentier treadmill, and worldwide it dwarfs even the financial sector for the inequality it causes and the long term damage to growth and human adaptability.

What if we separate the “giving permission” part (and get rid of that) from the “get paid” part? And by extension, once you give up the “giving permission” part you have to give up on the ability of patent holders to set the price for the “getting paid” part. That’s a problem for patent holders, but not as big a problem if the method for getting paid is public, transparent, and balances the needs of market players who end up being both IP users and IP holders.

Very-high R&D cost industries (pharma, and according to an in-passing comment in the Planet Money piece, nuclear)

The folks who wrote the paper cited by Planet Money, “The Case Against Patents”, talk about moving large R&D to the public universities and government research facilities. There’s something to be said for that, but if we separate “getting paid” from “giving permission”, then we can help with the R&D-intensive sectors by extending patent terms rather than contracting them.

Think about it: if patent terms are as long as one day, and those rights included the exclusive right to give permission and set the price, patent trolls (and sclerotic market heavyweights) are still empowered to wreak havoc in post-facto lawsuits against startups. Software, electronics, (and for those with their history caps on, aerospace), we’re all familiar with the cases brought by and against RIM, Google, Apple, Microsoft, etc. It isn’t the length of terms that’s the problem, it’s the fact that they include exclusivity for any amount of time at all.

Personally, I think we should normalize patents and copyright together at 40 years with some form of compulsory licensing. There’s a symmetry to that. Copyright terms are too long, patent terms might be too short under a regime of compulsory licensing. It becomes neater that way, but I realize that copyright and patents are still pretty easy to deal with as separate issues.


Lawyers. They’re in IP, and they’re in government. If we threaten to get rid of patents, thousands of lawyers suddenly become very, very invested in completely stopping that change from happening at all. That’s all there is to it, so any reform faces that immovable object. So the interests of non-innovating rentiers need to be taken into account. We can’t get rid of patents, but we still give up too much economic growth and market churn under a regime of exclusive rights. We have to come up with something new, some kind of compulsory licensing. Lawyers should be aimed at each other, not at innovators and makers, so categorical prohibitions on using technology and information have to be replaced with marginal transfers from producers to IP holders.

What if we use the idea of open source to open a new channel in commerce? If a maker wants to bypass the current patent system, they have to put specs and source for what they sell online and put aside a set percentage of their revenue. Lawyers can trawl the online database looking for infringing products and file a claim against that revenue that has been set aside. Competing claims are adjudicated against each other and the maker never even has to talk to a lawyer, except maybe to ensure that their reporting is adequate and in good faith.

But the biggest problem will still be the rentiers and their shills going completely batshit bonkers about any reduction in their precious rights to control markets. They will be landing on this and similar threads like a ton of guano in 3, 2, …

You may be right, but exclusivity remains a big problem. If the exclusivity of patent rights went away, patent terms could be extended without harming the market. Indeed, the market would grow faster, making returns on successful products much higher.

You may be right, but exclusivity remains a big problem. If the exclusivity of patent rights went away, patent terms could be extended without harming the market. Indeed, the market would grow faster, making returns on successful products much higher.

Perhaps, though in a “market” as screwy as our health care system I honestly have no idea whether such a system would encourage more market growth relative to our current system - we’ve more or less uncoupled cost and market growth as far as prescription drugs are concerned.

The bigger issue I see with the compulsory licensing system wrt drugs is setting the license cost. Who would be responsible for determining the cost of licensing? A percentage system wouldn’t work, since as mentioned in the story a pill costs literally pennies to make so there’s no way you could make back your investment simply skimming off the top of a generic drug company’s revenue. You’d need to set a price which makes it possible for the original company to make their investment back, which combined with a longer patent term honestly just seems like it would cost society more in the long term.

Honestly, I wouldn’t say market exclusivity is a big problem in pharma, since (unlike in other industries) drug patents are often fairly narrow in scope and only cover a specific set of compounds. It is usually not terribly difficult to design around competitors’ patents with compounds that are similar but different enough to claim as new (we do it all the time, it’s called “patent busting”). Often you will see a flurry of activity in the patent literature from different companies working on similar looking molecules all based on someone else’s patent. It’s actually a great example of how patents can spur innovation - though you can’t make a competitor’s exact compounds, you can use it as a jumping off point to make something similar that might end up being better. And the ticking clock of patent expiry really puts the pressure on us to find the next big thing as quick as we can - it takes ~10 years to take a drug to market, so you’ve already lost half your patent life just in development.

So the R&D costs so completely skew the process to make any kind of rights short of indefinite exclusive rights a losing proposition? Sounds like government funding of universities and national laboratories might be the way to go, then.

I don’t think you are crediting how much the pharma market is skewed away from basic research, drugs for people who don’t matter, and how much it is skewed toward extracting remuneration out of the disposable income of well-off Americans. Pharma already went through a crisis over compulsory licensing when it came to developing countries. Ignoring the fact that similar issues arise in developed countries isn’t going to do the industry much good in the long run. Perhaps they should look to leave R&D to a diverse sector of universities and laboratories and get down to the business of making pills for pennies a pop.

According to the patent lawyers I worked with, this myth is at the very least not true today (can’t speak for the oldentimes). From what I was told, the patent process very much favors wealthy corporations. The lawyers I worked with said that legally defending a patent is very, very expensive - that it runs into the millions of dollars. Having a patent alone guarantees very little; having the money to defend it is what gives the patent some meaning.

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