Saturday, August 13, 2011

(Software) patents don't make much economic sense

Patents, in particular software patents, usually don't make sense from an economic standpoint. Patents grant a monopoly to an individual for the invention. Having a single individual control production and use of an invention is obviously inefficient compared to allowing everyone to use and build on it freely - there are a huge number of people in the world who could be doing useful things with the invention that are unable to do so because of the monopoly granted. Thus, granting the monopoly means that during the period the patent is valid, society makes less efficient usage of the invention than if it were in the public domain. How much? Well, let us say for the sake of argument that it's 10x less efficient. This number is completely made up, but bear with me.

Of course, patents act as an incentive to inventors. Without the incentive, perhaps it would have taken longer for the invention to become common knowledge. Let us say for the sake of argument that it took an extra five years for invention X to arise in the absence of patents. In this case, after the five year period, society benefits ten times more each year than it would if a single inventor were given a monopoly. If we assume, say, that society derives one unit of utility each year from the invention, then after a single year in the public domain, society will already have obtained double the benefit from the invention than in the previous five years that the patent holder was granted his monopoly. And this will continue for the lifetime of the patent.

Obviously, these numbers are made up. The point is more that the invention really does have to be something that would not have been discovered for a very long time to make up for the inefficiency of granting a monopoly. If it would have been discovered relatively soon anyway we would have been better off just waiting for that to occur. Software patents rarely make sense because software development requires almost no capital investment, and as a result, it is almost impossible for an individual to develop some software invention that would not be discovered by multiple other people soon in the future. Do you know of any individual or organization that is even capable of creating some software "invention" that would not be rediscovered independently anyway in the next five or ten years? I don't. No one is that far ahead of everyone else in software, precisely because there is no capital investment required and no real barriers to entry.

What I find irritating about all the software patent discussion is that patents are intended to benefit society - that is their purpose, "To promote the Progress of Science and useful Arts". But no one seems to want to reason about whether that is actually happening - that would mean doing things like thinking about how likely the invention was to be independely discovered soon anyway, estimating the multiplier of having the invention be in the public domain, etc. Instead we get regurgitation of this meme about making sure the little guy working in his basement gets compensated for his invention. Aside from the disingenuousness of this example, this is shifting the discussion away from the real issue. The issue is not whether "the little guy" deserves to be compensated for his work, the issue is whether granting "the little guy" or anyone else a monopoly for 17 years is net beneficial to society.

8 comments:

TechNeilogy said...

In the day when our current patenting system was invented, things weren't too far from the "lone guy in the basement" inventing basic things like steam engines, etc. They were designed to protect that type of inventorship. These days, anyone working in an environment where patents are likely to be produced has generally already signed away assigment rights in an employment contract.

Runar said...

The idea of a "net benefit to society" is a utilitarian fantasy. There is no such entity as society. A society is a collection of individuals. The trap here is that there is some imaginary arbiter of what constitutes a benefit to everyone simultaneously. But in reality everyone judges for themselves what is or is not a benefit to them.

Paul Chiusano said...

@Runar - here is another way of thinking of it: what sort of patent/IP-enforcing agreement would a collection of individuals, each acting in their own self interest and notions of value, rationally choose to abide by - provided they were assured others would abide by the same agreement? If we are going to have any IP/patent laws, this type of arrangement is what we should have. I consider such an arrangement "net beneficial" (just "beneficial" is prob better) to the group, since if it weren't not everyone would agree to it. There's no third party arbiter needed. Everyone decides for themselves that it is in their best interest to cooperate so long as everyone else cooperates as well, and everyone's outcome is better (according to each individual) as a result. Think of the prisoners dilemma - it is rational to cooperate rather than defect provided you are assured the other party will cooperate also. This is just achieving a better equilibrium via reaching some shared agreement / contract and it doesn't require any appeals to a third party.

Anyway, I was just pointing out that patents are ostensibly in place for quasi-utilitarian reasons like this (maybe utilitarian is not the right term, since there is no real 'netting' of value or third party arbiter), but no one seems to bother doing any sort of reasoning to see whether the supposed goals are being achieved.

Runar said...

The purpose of laws in general is not to maximize utility, but to protect rights. The real question is a moral one: does inventing something give you a moral right to dictate other people's use of that invention? Does the fact that something has been invented give you a moral right to utilize that invention without compensating the inventor?

Paul Chiusano said...

@Runar - we should discuss this over beers sometime. I think we are sort of talking past each other.

Just curious, what are your answers to the questions you posed?

Runar said...

Yeah, in fact I'm having beers with some Scala types tonight after BASE. You should join.

BMeph said...

Technically, you're both missing the point. Similar to the myth of the Southern Insurrection (commonly, and also wrongly, called "the American Civil War") and public schooling, patent issue started with a purpose specifically beneficial to the government, and later on, a social benefit myth was added to gain and keep public support.

There were and still are, two main reasons for patenting anything: 1) the government gives the inventor a "short" lead time to develop production and a market, in order to recoup some of the lost costs of developing the invention in the first place; 2) the government gets the privilege of getting a "sneak peek" at what you're up to, in order to possibly improve its means of waging war (if only by improving its communication abilities).

That's it - kickback to the first inventor, and government archiving for possible "public" use. TechNeilogy brings up a cute historical development side effect of the arrangement: a research corporation that assumes liability (and profit) for inventions found by its sponsored employees.

The corporate interest is an important entry into the arrangement, though, in that it gives another interested party to keeping the present arrangement, instead of something more moral (by Runar's standards)/beneficial (by Paul's)/sane (by mine).

All-in-all, something to think about....

Asko K. said...

I think the main issue is that - unlike the rest of the society - little has changed with the patent industry since late 1800's.

There are several issues, only one of which is the fairness approach you mention. Others are the almost complete lack of global approach (means: lots of bureaucracy) though we are in a singular world by now. And incredibly long processing times, though we are in an instant world. All these show that Patents as we know them are a castle of bygone values and processes.

Of course, in the IT world this all is most visible. Having a lifespan of 20 years is simply ridiculous.

Making a "Patents 2.0" system should be global (like business is), fast (processing within 1-2 years max), and with lifespans relative to the industrial field.

Or, we can go the "Unpatent" way and publicize technologies as if they were patent applications, but skip the waste of money and time. This is akin to open-sourcing technical solutions. The benefit is that it avoids someone *else* turning your solution against you, by patenting it.

All in all, I think patents are becoming less important. But they are still big business money-wise. Do they bring any real value to life? Maybe. Devices from i.e. Dyson come to my mind. Those do indeed deserve some protection.

My own take: patent only simple parts, selectively. Unpatent the rest. Don't touch software patenting even with a long stick (actually: keep away from U.S. market for that reason?).