Thursday, July 13, 2017

Is the Patent System Fair?



No system devised by man is ever 100% fair or efficient.   This does not mean, however, that we should just discard them.  The Beerbrella Patent.


A reader takes me to task over a recent posting, where I mused that people who actually create wealth or participate in assisting others in creating wealth, should be rewarded for their efforts.  Those who merely rearrange wealth should be in jail.

He argues that our Patent System falls along the lines of the latter.   I disagree.  Our founding fathers enshrined the Patent system in our U.S. Constitution: "To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries."

Thus our Patent and Copyright system was born.   And this is a classic example of where those who create wealth are rewarded.   This is not a mere re-arrangement of money, but granting of exclusive rights to those who create something new.   Unlike the Royal Patent Grants of our European forefathers - where the King would hand out exclusive rights to industries to favored followers - our system is not (supposed to) grant exclusive rights for existing technologies or obvious derivations thereof.

You write a poem, song, or novel, you are rewarded with profit.   If not for Copyright, authors would make no money from their writings whatsoever.

Similarly, you create a new machine that does something no one has done before, you create wealth for society, and you should have a right to exploit this technology - at least for a while - to be rewarded for your efforts.

This is a classic example of what I am talking about.   Creating wealth should be encouraged - our founding fathers recognized that clearly.

But the reader argues that the system isn't perfect and thus is not creating wealth, but instead allowing some companies to have illegal monopolies.   I agree the system isn't perfect, but I disagree with his conclusion.

Yes, there are people who invent things who never see a penny from their inventions.   Either they cannot get a patent for one reason or another, or they lost a fight in court.  Or it could be their invention wasn't worth enough to litigate.  But some inventors do win, however, and this is the motivation for others to invent.   And other inventors could have won but often choose not to.   The "windshield wiper guy" turned down millions of dollars in a settlement offer (more than his invention was worth!) in favor of litigating.  And he won less than the settlement offer - and lost many other cases.   That was his choice - and the idea that the system is "perfect" was his downfall and has been the downfall of many.

Similarly, you hear stories about young rock bands that sign away their royalty rights.   It happened to the Beatles, even.   But of course, they were still wealthy enough to buy fancy cars and mansions, so they didn't exactly starve.  Sadly, the same cannot be said for one of McCartney's proteges, the band Badfinger, who signed away their rights to a manger and could not even perform their own songs.   Two band members committed suicide as a result.

The "Manager" who screwed them is an example of the second thing I was talking about.  He didn't create wealth or create anything - he just took wealth away.   That is the sort of guy we should be putting in jail.   Abolishing copyright law isn't the answer - that would just mean that every artist ends up getting screwed.   Educating young rock stars to think twice before signing a contract is a better idea.   But people are always going to strike bad bargains - does this mean we abolish the marketplace?

Similarly, in the Patent business, often inventors are not the ones who make the bulk of the money from their inventions.   Alexander Graham Bell (no relation) signed away 95% of his company to investors and others.   Getting a Patent on a phone (in his case, the magnetophone) isn't the whole deal.  Setting up phone exchanges, building handsets, running wires, and signing up subscribers is.  A Patent, by itself, isn't worth the entire business.

And many inventors work as Engineers for companies, signing employment agreements that obligated them to turn over rights to inventions they develop while working for the company on company time using company resources to their employers.   Is this an example of people "taking away" wealth rather than creating it?

No.   Rather it is an example of hedging.   The Engineer who works for a big company is trading the opportunity to "strike it rich" on his own with an invention, for the surety and security of a steady paycheck and benefits from employment.   That is why he is paid more than the janitor.   The Engineer is betting that he will never invent anything of value for the company and the company is betting he is.   Who is the fool here, exactly?

But what about the "big corporations"?  Aren't they "stifling technology" with Patents?   Maybe.  Maybe not.   Right now, if you want to buy a smart phone, you have a choice of a number of makes and models and operating systems.   Apple doesn't have a monopoly on the market, even after arguably creating the first modern flat-screen smart phone (smart phones existed before that, of course).   In fact, worldwide, they are a minority player in the market - and at $1000 per phone, it isn't hard to see why.

You can buy an Android phone from a number of companies.  And Samsung has made a lot of money from their phones.   Granted, these phone companies, like the computer companies before them, spend a lot of time in court arguing over who invented what.   But the history of these cases is less about anyone having a "clear win" and excluding others from the market, than negotiations over pieces of these things, with money changing hands (often not much money, in the end) and settlements being reached.

And like the thousands if not millions of Engineers and other employees out there who assist in the creation of wealth in these computer and smart phone enterprises, Patent Attorneys assist in this process as well - by obtaining and litigating Patents to help determine whose has the rights to what and how much others are owed.

Now, you can argue the system is flawed - that "Patent Trolls" are unjustly enriched with their frivolous suits in the Eastern District of Texas.    And yes, many of those people should rightfully be in jail, or punished somehow, for their malfeasance.   And that is why we have Police and Courts in our system - to catch wrongdoers and punish them, again not a perfect system, but one that works at least half the time.   And in that regard, there are Patent Attorneys working to police the Patent System, and bring the evildoers to justice, either in the courts or in the legislature.

That the system isn't perfect or that it takes time to see results, are not reasons to abolish the system.

Some folks, particularly on the far-left, think that intellectual property should be abolished, much as it was in Soviet Russia.   Oh, sure, they had "inventor's certificates" back then, but they were little more than wall plaques - no one profited from their inventions, hence few invented there, except under duress.

But most of the folks who say these sort of things are kids who get upset that they can't just copy their favorite band's music over a streaming site, or can't pirate the latest explosion movie (which in reality, they can, if they really put their mind to it).  Or they are naive losers who think they should be entitled to exclusive rights to an invention they never would have developed on their own, but for the fact of their decade of steady employment in a laboratory that provided them with all the equipment they needed as well as direction on where to research.

And just as in my previous posting, we come to the same two conclusions.   Abolishing our incentives to wealth, including our Patent system, would only serve to encourage those who don't invent or create, but punish those who do.   And with regard to the malfeasants in the economy who abuse the system, we have policing in the system to try to stop this, but of course, it will never be perfect.

But the best policing is, in effect, within your hands.   Just as you have the choice not to engage with a payday loan place, or a rent-to-own furniture store, a casino, a shady mortgage lender, or a buy-here-pay-here used car dealer, you do have choices when it comes to intellectual property.   And often this choice is simply to not consume.

A young man on Reddit laments that Ticketmaster is "unfair" because they hog all the tickets and (shockingly) charge fees to sell you a ticket.   They want to go see their favorite Death Metal band, and the tickets cost too much!  It isn't fair I tell you!

But they neglect the most powerful weapon they have - deciding not to consume.   If you don't go to the Death Metal band concert, you will save all that money.   And if enough people don't go, then they will have to lower ticket prices.   In fact, if the place does not sell out, you may find people hawking tickets on the day of the event for half-price. 

The prices are determined by supply and demand.   And the reason why the Death Metal band tickets are so expensive is that tons of idiots think that paying hundreds of dollars to listen to bad music and damage their hearing is a swell idea.   And the same goes true for buying copyrighted music, movies, and books.   You decide you "have to have" or "have to see" the latest releases, books, or movies, you have to pay a lot of money (or risk bootlegging).   If you stop deciding that you "have to" consume things (which you really didn't want to do - you were just baited into it in the first place) you can save a lot of money.  In no time at all, the "must see" explosion movie is on cable or Netflix, or turns out to be a dud anyway.

Similarly, if you decide you "have to have" an iPhone 8 and are willing to stand in line for hours for it and pay $1000 for it, whose fault is that?   And does it really have some "must have" feature or is it simply a piece of electronic status-symbol to impress people by dint of how much money you've spent on it?  Your choices are more important than the actions of others.

The reality of the Patent system is that very few inventions are of such ground-breaking technology that any one player can exclude others from the market and demand monopoly prices as the windshield-wiper guy found out the hard way.   Rather, they are a way of managing and determining who created what wealth by inventing some portion or feature of an overall product.

And sadly, just as the streaming teen doesn't see why he should have to pay full-price for content, some Engineers I've met have an irrational belief that they should be entitled to all the profits earned by an invention.   One I talked to thought that his licensee should hand over all profits to him and develop the product, manufacture it, and market it, all on a break-even basis as if they were a non-profit charity for inventors - and not taking any risks for which they should be rewarded.   I am not sure how to parse this, other than it is not a realistic expectation in life.

Is our system perfect?  Hell no.   Crooked people from all walks of life get ahead sometimes.   Most of the time, though, you read about them when they get caught.   Bernie Madoff made millions not by creating wealth (through investment) by by rearranging wealth (in a Ponzi scheme).   In the end, though, his life was ruined, his kid killed himself, and his wife lives a shattered existence.   We don't  catch all the bad guys this way, to be sure, but we do catch quite a few of them.

To say that because a few get away, we should just abolish the courts and police, however, is just nonsense.  And similarly, to argue that because you don't believe the Patent and Copyright system works to your personal advantage it should be abolished is idiotic as well.  There are enough people out there who are creating wealth and being justly rewarded for it.   And I know this because I assisted in this process by writing the Patents and know the inventors who made money from them.

Sadly, this mentality of "if it isn't perfect, let's abolish it!" seems to permeate politics on both the left and right.   Leftists argue that our entire economic system should be overthrown in favor of Socialism because Capitalism isn't always even-Steven.  Rightists argue that all government regulations should be abolished because they are not 100% effective all the time and sometimes have unintended consequences.

Both sides are wrong and both annoy me.  Human endeavors, by their nature, are inefficient.   But in the history of mankind, the system we have evolved, so far, is by far the most efficient of the lot.

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