Do patent and copyright law restrict competition and creativity excessively? Posner

I am concerned that both patent and copyright protection, though particularly the former, may be excessive.

To evaluate optimal patent protection for an invention, one has to consider both the cost of inventing and the cost of copying; the higher the ratio of the former to the
latter, the greater the optimal patent protection for the inventor. The ratio
is very high for pharmaceutical drugs. The cost of inventing a new drug, a cost
that includes the extensive testing required for the drug to be approved for
sale, is in the hundreds of millions of dollars, yet for most drugs the cost of
copying—or producing an identical substitute—is very low. And so the ratio of
the first to the second cost is very high, making it hard for the inventor to
recover his costs without patent protection (and for the additional reasons
that the present value of the revenue from sale of the drug is depressed
because of the length of time it takes to get approval, and that the effective
patent term is truncated because the patent is granted, and the period patent
protection begins to run, when the patent is granted rather than, years later,
when the drug can begin to be sold).

Pharmaceutical drugs are the poster child for patent protection. Few other products have the characteristics that make patent protection indispensable to the pharmaceutical industry. Most inventions are inexpensive, and even without patent protection, or any other legal protection from competition, the first firm to invent a
product usually has significant protection from competition in the near term.
The first firm gets a headstart on moving down his cost curve as experience
demonstrates ways of cutting costs and improving the product. And the public is
likely to identify his brand with the product, and keep buying it even after
there is competition, and at a premium price. Moreover, many new products have
only a short expected life, so that having 20 years of patent protection would
confer no real benefit—except to enable the producer to extract license fees
from firms wanting to make a different product that incorporates his invention.

When patent protection provides an inventor with more insulation from competition than he needed to have an adequate incentive to make the invention, the result is to
increase market prices above efficient levels, causing distortions in the
allocation of resources; to engender wasteful patent races—wasteful because of
duplication of effort and because unnecessary to induce invention (though the
races do increase the pace of invention); to increase the cost of searching the
records of the Patent and Trademark Office in order to make sure one isn’t
going to be infinging someone’s patent with your invention; to encourage the
filing of defensive patents (because of anticipation that someone else will
patent a similar product and accuse you of infringement); and to encourage
patent “trolls,” who buy up large numbers of patents for the sole purpose of
extracting licensee fees by threat of suit, and if necessary sue, for
infringement. 

The problem of excessive patent protection is at present best illustrated by the software industry. This is a progressive, dynamic industry rife with invention. But the
conditions that make patent protection essential in the pharmaceutical industry
are absent. Nowadays most software innovation is incremental, created by teams
of software engineers at modest cost, and also ephemeral—most software
inventions are quickly superseded. Software innovation tends to be piecemeal—not
entire devices, but components, so that a software device (a cellphone, a
tablet, a laptop, etc.) may have tens of thousands, even hundreds of thousands,
of separate components (bits of software code or bits of hardware), each one
arguably patentable. The result is huge patent thickets, creating rich
opportunities for trying to hamstring competitors by suing for infringement—and
also for infringing, and then challenging the validity of the patent when the
patentee sues you. 

Further impediments to effective patent policy in the software industry include a shortage of patent examiners with the requisite technical skills, the limited technical competence of judges and jurors, the difficulty of assessing damages for
infringement of a component rather than a complete product, and the instability
of the software industry because of its technological dynamism, which creates
incentives both to patent and to infringe patents and thus increases legal
costs.

The pharmaceutical and software industries are the extremes so far as the social benefits and costs of patent protection are concerned, and there are many industries in between. My general sense, however, bolstered by an extensive academic literature, is that patent protection is on the whole excessive and that major reforms are necessary. 

Turning to copyright, I note first an interesting contrast with patent law. Although there are some industry-specific differences in patent law, for the most part patents
are “one size fits all,” so far as length of protection and criteria and
procedures for the grant of a patent are concerned. In contrast, copyright
protection tends to vary considerably across different media. For example, when
recorded music came into being, instead of providing it with the same copyright
regime as already governed books and other printed material, Congress devised a
separate regime tailored to what were considered the distinctive
characteristics of music as a form of intellectual property. Patent law could
learn from that approach.

The problem of copyright law is less acute than the problem of patent law, partly  because copyright infringement is limited to deliberate copying; patent infringement does not require proof even that the infringer was aware of the patent that he was
infringing. Nevertheless, as in the case of patent law, copyright protection
seems on the whole too extensive. Granted, with modern action movies often
costing hundreds of millions of dollars to make, yet copiable almost
instantanteously and able to be both copied and distributed almost costlessly,
the need for copyright protection is comparable to that in the pharmaceutical
industry. At the other extreme is academic books and articles (apart from
textbooks), which are produced as a byproduct of academic research that the
author must conduct in order to preserve his professional reputation and that
would continue to be produced even if not copyrightable at all. It is doubtful
that there is any social benefit to the copyrighting of academic work other
than textbooks, which require a lot of work and generally do not enhance the
author’s academic reputation and may undermine it.

The most serious problem with copyright law is the length of copyright protection, which for most works is now from the creation of the work to 70 years after the author’s death. Apart from the fact that the present value of income received so far in the future is negligible, obtaining copyright licenses on very old works is
difficult because not only is the author in all likelihood dead, but his heirs
or other owners of the copyright may be difficult or even impossible to
identify or find. The copyright term should be shorter.

The next most serious problem is the courts’ narrow interpretation of “fair use.” The fair use defense to copyright infringement permits the copying of short excerpts
from a copyrighted work without a license, since the transaction costs of
negotiating a license for a short excerpt would tend to exceed the value of the
license. The problem is that the boundaries of fair use are ill defined, and copyright
owners try to narrow them as much as possible, insisting for example that even
minute excerpts from a film cannot be reproduced without a license.
Intellectual creativity in fact if not in legend is rarely a matter of creation
ex nihilo; it is much more often incremental improvement on existing, often copyrighted, work, so that a narrow interpretation of fair use can have very  damaging effects on creativity. This is not widely recognized.

The need for reform is less acute in copyright than in patent law, but it is sufficiently acute to warrant serious attention from Congress and the courts.

Comments

[Hanna Griesbach]

I always like to read the views you both have on issues. There are a lot of complex issues going on with patents and for them to cover so many different industries. I think of the baby industry and all the products in that category alone! Thanks for a great read and thought provoking ideas.

Hanna
http://www.freegifts4kids.com/

[Neilehat]

Let's not forget the operational triumverate of Intellectual Property Law, "Patent, Copyright, and Trademark". All three operate in unison to protect not just individuals and companies financial and intellectual investments, but also National Economies and Trade Balances. Without which, huge International Blackmarkets develop piggybacking themselves to open freetrade avenues. Much like that which have developed to date in countries that do not have a legal history of Patent, Copyright and Trademark or the currently developing trade in cheap knockoffs that are now threatening various producers, damaging National productive capacity and National Trade Balances which are increasingly controlled by International Organized Crime Syndicates.

Perhaps from viewing the problem from this perspective, tighter Legislation is warranted. Not less.

[Ralph Koettlitz]

The theory that copyrights giving authors an incentive is a theory but not very good support by history. In many countries they can't publish their books without signing a total buyout contract. The consequence is, that many authors can't live from their books even with a good amount of sold books.

Eckhard Höffner presented in "Geschichte und Wesen des Urheberrechts" a good point, when he compared the history of copyright in England and Germany in the year 1800, when in Germany were every year published more than 4000 new books despite a non existing copyright, while in England the amount of published books was at 700. England had a copyright since 1710. Eckhard Höffner observed that the marked concurrency between the publishing houses were positive for the authors, because they wanted publish the books.

A future copyright should be a right of the author and not of a publishing house. Every copy is to be paid by a publishing house or a internet customer to the author. In our world of a global internet, this not really a problem. But the huge amount of orphaned books, films and other works of art is a shame for the western civilization. So many art has been forgotten, because of the unsure copyright situation.

[Biggy82]

Judge Posner, I am sure by now you have read Richard Epstein's response to your recent ruling: http://www.hoover.org/publications/defining-ideas/article/123926

Although Epstein voices his disagreement with your judicial opinion and personal views at a somewhat general level, it is plausible that if one zooms in on details, his argument may be solid.

It might very well be the case that without patent protection, it would be difficult to attract the various investors to a particular firm aiming to make and market a product. The counter-argument to that, of course, is that once the playing field is level - patents are either wholly eliminated, or eliminated from some fields - investors would have no choice but to invest in firms and products based not on the attractiveness of patents, but based on the marketing expertise and potential of a given firm.

However, this imposes its own costs on the system as a whole. It would surely create a state of flux, because uncertainty of marketing is still greater than a legal uncertainty of patent protection.

In sum, I think it's worth to examine potential costs on all sides of the equation and this is a debate that should be taken seriously not just by scholars, judges and other experts in the field, but by US Congress.

[Yegor Jbanov]

Biggy82, in software the problem is reversed. What scares away investment is fear of litigation, not fear of ability to protect your invention. It's not the idea that's hard to come up with, it's executing on that idea. If someone else is able to execute (code, test, deploy) on the same idea without direct copying of source code, kudos to them. You, as an investor, shouldn't fear that someone else will implement the same idea. It's hard. As a thought experiment, think of how hard would it be to create iPhone, Google Search, or Microsoft Office. Even with access to all necessary patents. Software startups fail not because someone steals their idea, but because of poor execution, poor quality or simply bad idea.

In pharmaceutics the hard part is to get the formula for the drug, not producing the drug. In software the formula (i.e. a specific algorithm, idea or technique) is the easy part, but producing a working piece of software is hard (see the ratio discussion in the blog post). Software is already protected by copyrights, trademarks and code obfuscation techniques. So it's hard to replicate software even without patents. You cannot (or not allowed to) copy source code directly. Yet these protections do not block competition or create entry barriers. Patents, however, take this protection way too far and are primarily used to:

- Eliminate competition - big monopolies, such as Apple, Microsoft, and Oracle do this to eliminate competitors to their own products.
- Extract licensing fees - patent trolls buy IP for the sole purpose of extracting licensing fees while not innovating themselves.

It's these two things that hurt competition and investment. Not lack of protection. But, patent holders, obviously, have an incentive to argue otherwise.

Disclaimer: I've had a quite successful 10-year software engineering career so far.

[Account Deleted]

When it comes to textbooks you might be ignoring the benefits ("one has to consider both the cost of inventing and the cost of copying"). After all nothing is more important than education,long term.
About movies that cost hundreds of millions, one can argue that the cost is a direct result of the current rules of the game, in a more reasonable world where nobody gets 20 millions for 3 months of work movies would cost far less.Also such movies are positive from an economic point of view but the tragic lack of quality might be detrimental to society.
Copyright also feeds a lot of leechers,while that has a positive economic impact,starving them would not harm creativity long term.
There are also alternative ways to create revenue that should be factored in.
Also a fundamental problem with copyright is that it's a monopoly in itself.

About patents,while i agree that there is a need for a reform,i will point out that an idea is not worth just what was invested in it, an idea is creativity, an idea generates revenue,those factors should matter.
Maybe one way to do it is for all patents to to considered essential and force companies to license them at a fair price and/or an expiration after 2 years from first revenue or 5y from filling.Forcing big farma to license at a fair price would not hurt either,after all it's not only about the money.
Guess in the end the calibration of the solution depends on one's humanity or ... political orientation.

[Jonathan Brown]

The primary purpose of patents is not to protect inventors, corporate or individuals or those who invest in them, but is for the preservation and self interest of the issuing State. Looking at patent law in abstract from the main purpose of them as instruments of state control is where much of the confusion about patents starts.

In a world that is increasingly technology dependent, global in trade and political influence, national interest and economic survival may have ever widening interpretations and consequences.

Patent laws remain parochial in form, archaic in structure and are used to underpin protectionism.

[Przemysław Lib]

Biggest problem of US patent system.

Nobody measure cost of checking if product infringe any patent.

This cost can only rise (more patents are being granted not less, and that is goal as patents == innovation in USA legal system :( ).

But nobody check if cost of checking if your product is on the green side is still affordable!

So we have all those patent reporting sites who warn readers that in given post they will talk about some patent! So people who my have products that infringe can IGNORE such text, and look other way.

And those triple damages. If nobody knows if cost of checking is still economical, then how anyone know if triple damages have effect they should have?

And best of all.

Triple damages for trying and failing, when succeeding may be bluntly IMPOSSIBLE.

Judge Posner if you want to start serious talk about patents talk about:

1) Costs of checking if product infringe
2) Costs of defending litigation based on invalid patent (defending fees vs license fees on INVALID patents)

While talking about influence of lifespan of patent on innovation pace in current industry is good. Its not the biggest problem by far.

[Stefan Wundrak]

Why not make the granted time during which an invention is protected directly dependent on the investment that was necessary for this invention?

[Elliott Chenoweth]

The only fair implementation of copyright and patent law is none at all.

[globetrotter]

Both copyright and patent laws are being abused by players that specialize in extorting money from consumers and corporations.

Software Patents exists on scale largely because IBM (which used to be known for strong arm tactics using patents against rivals in the 70s), filed a whole bunch of them before patent officers had any experience of software at all. Later, as software industry matured, it seems like the law was reformed to justify IBM's patents in hindsight, with the patent lawyers advising. I can't imagine there were any software developers or entrepreneurs present, so the patent law framework became a jobs program for lawyers.

Patent protection of drugs make sense, but not to this extent. Recovering 100s of millions of invested R&D is not the same as making 100 Billion from a lucky break. Drug research is mostly about trial and error and gambling, backed up by some clinical grunt work. They should get paid back, but not have 7 years to hold the world hostage if they get lucky and find a cure for cancer. The investors in that company would insist on full Patent protection and then sell the drug for the equivalent of what the patient has in saved assets.
Let drug companies recover proven R&D expense + a 30% premium and then put drugs in public domain.

Copyright should be applied to creative artwork where there is an individual or a limited number of defined authors. If there are many, maybe the time length of protection should be divided by number of participants. The law no encourages the media industry to create any kind of industrially engineered garbage concoction in search of a hit, and then when a hit is found then the world is milked and milked and milked for money. To give machine generated output full copyright protection is a biz odd.

The intellectual property (IP) industry has become an extortion racket where we fist sell people copy tools like the computer and the copy machine (and charge copyright and patent fees) but then sue them when they do copy... It seems like the aims of the IP lobby is to get all of the household budget that people have left after paying for rent and food.

Globetrotter

[globetrotter]

Just to add another comment about software patents since I have worked in the industry since 1983.

The software industry was extremely vibrant and competitive in the period 1983-93 during which there was literally no patent protection. Products adopted ideas from each other left and right, and nobody thought it was unfair. Innovation was thriving and the players all made good amounts of money.

Then when MS was about to split from the joint venture with IBM around 91-92, I guess the IBM lawyers got involved and as part of the divorce deal wanted a patent swap. We (I was there and reviewed some IBM patents for Word) at MS said "holy shit we don't even have any", and MS started a massive filing campaign, filing for every imaginable software feature we could think of.

Then soon after MS got hit with a $100m jury verdict for patent infringement on STAC's compression technology for DOS files. The jury and judge were all asleep during the proceedings as lawyers debated the meaning of machine language instructions...but decided that infringement had occurred.

After this, the patent war was on, and every tech company has been filing for patents on every imaginable line of code they write.

Globetrotter

[WaltFrench]

This article wrote, “Further impediments to effective patent policy in the software industry include a shortage of patent examiners with the requisite technical skills…”

Isn't this the same thing as saying that the Highway Dept can't hire enough patrolmen, so we ought to abolish speed limits and other laws subject to judgement, such as “weaving” or “distracted driving?”

The laws are meant to be enforced; if too many patents end up in the courts, we have merely chosen a rather expensive option. And that choice, too, was made by Congress, which is (still, last time I looked) responsible for writing the law.

[Martin Langhoff]

As a software and hardware practitioner with many years in the industry, thank you for such a clear and succinct exposition of what is wrong with patents in the technology world.

The current approach of USPTO of defaulting towards approval and letting the courts settle the matter makes the situation much worse; piling a huge uncertainty on anyone working in this industry. Yes, you can be sued anytime, and it will cost millions to sort it out; even if you prevail in court the lawyers' bill will likely sink your venture.

[AnneBarschall]

Here in the USA, we live in an environment where traditionally there have been patents and copyrights. This legal tradition has encouraged a culture where innovation is valued, because innovators have reaped the rewards of innovation. In cultures where innovation was not rewarded, innovation was not valued in the same way. As a result of the culture established here, due to strong intellectual property protection, the USA has traditionally had the best science and engineering in the world.

Software people cite the early progress in the software industry, when patent protection was either not available or not sought, as evidence that patent protection is not necessary. This is a fallacy.

First, those software people worked in this culture that had engrained encouragement for innovation that came from our history of intellectual property protection.

Second, there was quite early on a strong move for at least copyright protection to help out those innovators. Early copyright cases quickly started talking about protecting "structure, sequence, and organization," to try to extend protection as broadly as possible. This was a bit of a stretch in the law, but it showed a recognition of the importance of rewarding those who created economic benefit to the country.

Problems with software patents have continued because at first the United States Patent and Trademark Office refused to hire patent examiners with a computer science background, so poor art searches were performed.

More problems have been created because the original Supreme Court case on this topic, Gottshalk v Benson, has severe logical flaws and a nonsensical result. I encourage people to read my brief in the Bilski case for more discussion of that. My brief is up on my blog.

The nonsensical opinion in that first case has resulted in extensive legal uncertainty and much litigation, leaving the entire field of patent protection for software unsettled for almost half a decade.

Have nots always want to take from haves. People who don't have money want to take money from people who do. People who don't have houses want to take housing from people who do. People who do not have intellectual property want to take it from those who do. I find this ethos repugnant.

Patents need to be whole heartedly endorsed by statute and the entire line of cases stemming from Gottshalk v Benson needs to be overturned.

Moreover, the idea that mathematics is not an invention also needs to be overturned.

[john_bc]

I am a software developer from New Zealand, working alone on my project for 3 years, and just prior to release I was sent a patent infringement threat by a US company for technology that is in the public domain since 1998.

I have consulted an attorney and he tells me their patent would not stand, but I have no funding for such a legal battle. My software is very useful for the scientific community and general data analysis, and contains many improvements over other similar software which I am quite proud of. I now fear 3 years of my work have gone down the drain for nothing, and I feel powerless and desperate. It is very unfair. How am I supposed to start a business at all?

Perhaps non-US software developers should avoid selling software to US clients at all, I know some researchers in this general area are starting to put up notices that they won't sell software to US clients, due to fear of patent infringement. Unlike promoting innovation, software patents seem to be preventing innovative solutions from reaching the US.

Thank you for your blog post, hopefully a few policy makers will consider your views.

[KP]

Although I agree with the general sentiment here, I feel there's not enough examples of how the current patent system goes wrong on a day-to-day basis. Only the big stuff makes the news, like Apple, Motorola, etc.

- As a computer programmer, I'm scared to start my own business developing software. You might say, "Oh, but look at Facebook and Google, who got started in the same atmosphere as you." That's true, but they're just outliers. Most software companies don't make it, and I'm terrified of getting my ass sued.
- I once worked for a huge corporation that did lots of legal publishing. There were rewards for doing something that led to a patent ($5000 for each patent, IIRC), but we were not allowed to discuss old patents in writing. It was all about plausible deniability, in case the patent went to court. Very sad...
- It's not as theoretical as "should patent protections be stronger or weaker?". There's a lot of crap patents out there, especially in the tech world. The Apple vs. Motorola, etc. news has kinda hit that point home. But there's even patents on swinging (think kids on a playground) and on peanut butter and jelly crustless sandwiches; thankfully it was overturned /six years/ after it was granted. Now just imagine what kind of crap a PhD could think of that the USPTO would overlook.

Sources:
- http://www.google.com/patents?vid=6004596
- http://www.msnbc.msn.com/id/7432980#.UGsNGPk-uAQ

[Zoobab]

Software patents are pure spam for software developers.

You cannot tell a software developer what to write and what not to write as software via patents, since his speech is protected by freedom of expression and the first amendment.

And software developers HAVE TO CONSTRAIN their speech if they want to respect patent law.

Sorry, this is not consistant.

[Pdiehr]

Diehr v Diamond should be overturned.

Algorithms should not be patentable - they are part of mathematics.

Mathematics wants to be free ...
Software wants to be free ...
Ideas want to be free ...

It is only concrete representations that should be subject to patents and/or copyrights.

[Russnelson]

Four aspects of patents you didn't touch on are: obviousness, prior art, disclosure, and working models.

The current interpretation of obviousness is: nothing is obvious and everything is patentable even though it's painfully obvious to an ordinary practitioner of the art. This is a consequence of something you DID touch on: the inexperience of patent examiners in the software field.

If I were a patent examiner (and I doubt the USPTO's salary range overlaps mine, so that ain't gonna happen), then anything I could google for would be obvious. Anything taught in colleges would be obvious. Anything you can find in a textbook would be obvious. This is not currently the case.

The next is prior art. There are several patents which were issued that overlap with previously issued patents. If the patent system cannot even find prior in its own database of ideas, how can it possibly keep up with the entire world? Basically, prior art is ignored as a criteria for unpatentability. That means that you can write a program, publish it as open source software, and somebody can use it to write a proprietary program, and patent your prior art. This is not a hypothetical -- it happened to me.

In addition, there is also the issue of disclosure. The patent system rewards disclosure with a temporary monopoly. And yet software can be both patented and copyrighted. This makes no sense. How do we allow people to claim a copyright on something which must be disclosed, and disclosed so that after the patent expires, people can reuse the idea.

And then we also have working models. People used to have to submit a working model, illustrating the operation of the patented device. It's possible to get a software patent which doesn't even work! A software patent MUST include a working stand-alone implementation which is in the public domain.

All of these problems should be fixed, or, better yet, just make software unpatentable.

[mpupilli]

@WaltFrench "Isn't this the same thing as saying that the Highway Dept can't hire enough patrolmen, so we ought to abolish speed limits"

No, this is a trite and ignorant analogy. There are laws which protect people from actual harm and of course these should be enforced. Then there are laws which setup rules with the intent of balancing the mechanics of various activities and these laws are utterly amoral. IP law is supposed to strike a balance, but as it currently stands it fails to achieve its intent and needs to be scrapped.

In fact, as Judge Posner clearly understands, there is zero evidence that patent law promotes innovation at all outside of the pharmaceutical industry. It is human nature to innovate, we don't need pieces of paper from the government to encourage it.

[Lorenzo]

While digging into these so called "inventions" by Samsung ( and undoubtedly many many others) I can only conclude it does not concern inventions at all. Like their description of signaling in a mobile communications device. I mean comon guys, EVERY university student in ICT or communications technology has done the same thing YEARS before Samsung or any other company did it. These are not even inventions but simple ways of getting things done. It is how every graduate would do it if you asked him to write software for a cell phone. If I look at what is patented, I might as well patent "the technique and apparatus to connect two or more electrical devices by means of a medium that transports electricity above or sub terrane" In other words patent the way you would dig a frakkin hole in the ground to throw in a damn electricity cable to get light in your wooden cabin in the back yard! Is that truly an invention???

[Phillip Helbig]

"You cannot tell a software developer what to write and what not to write as software via patents, since his speech is protected by freedom of expression and the first amendment."

Really? Where did you get that idea? Even Stallman, whom I loathe, can and does distinguish between "free speech" and "free beer". The idea that copying something one is not allowed to copy is somehow allowed because it is free speech is so stupid that it wouldn't be worth commenting on were it not for the fact that many people seem to be so deluded as to actually believe it.

[Zoobab]

@Phillip Helbig

If you are right, then programmers have to refrain from writing certain instructions?

[Zoobab]

@AnneBarschall

Do you write code, or do you write patent claims?

Maybe you should spend more time learning how to write code.