The purpose of patents is to create rents for inventors and innovators, so that they are rewarded for their efforts. But patents can also be abused, for example by patenting innovations of others, trivial innovations, and patenting innovations that have not happened yet and thus preempting competitors. One particular abuser is back in the news, SCO.
This small company used to provide an operating system based on Unix. It still does, but its main line of business currently is litigation. Specifically it sues companies that use Linux arguing that some unspecified code in Linux is based on SCO code. Which code has never been revealed, but the mere threat of litigation has been sufficient for some companies to pay up. Novell and IBM, however, have resisted and these court cases are not looking good for SCO.
Uniformly hated in the computer industry (except by Microsoft, which is one of its main funders), SCO has now hit a rough patch and had to file for bankruptcy protection. Last week, the company found people willing to cough up $100 million "to pusue its legal claims". So imagine: $100 million are being invested solely to litigate. Nothing is created here. In fact, there is still no evidence of ill-doing by the companies SCO is suing. Significant resources and entrepeurship is getting wasted on nothing. Without a patent system, this would not happen.
For a discussion on whether it is worth having a patent system, see Against Monopoly.