Tuesday, February 19, 2008

Abusing patents

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.


Bill Stepp said...

Patents increase rents by shielding patentees from the competition that would reduce them to competitive levels. But they do not in and of themselves create rents, which are the result of innovation and the market process.
To say that patents can be abused is like saying that slaves can be abused. Well, yes, but isn't slavery itself a violation of a slave's natural rights to life and liberty? If this is true, then patents are also a violation of the natural right of non-patent holders to use their own lawfully obtained and sometimes independently created copies of patented inventions and processes.
SCO is not merely an abuser. It's also a monopolist.

Economic Logician said...

My point is that SCO is a monopolist like any patent holder. Whether you call this monopoly a good thing or not is your opinion (mine is that it is bad). But on top of that, SCO is an abuser. It should meet all the SCOrn of the computer industry.

Bill Stepp said...

To say that patents can be abused implies that patents are justified to the extent that they are not abused. But contrary to your first sentence, the purpose of patents is not to create rents for inventors and authors, despite what the framers of the U.S. Constitution thought. They can earn competitive rents without the monopoly formerly known as intellectual property, as Billy Shakespeare did. The Official Justification for patents and copyrights is that they promote innovation and progress, but the empirical evidence down through history is that they actually block both. So at least part of the "abuse" is in their very justification, which rests on false doctrines and highly contentious evidence at best, as well as the panoply of effects they have on non-rights holders, including the violations of their rights.
Surely the most important abuse of slaves is in the justifcation of their enslavement, and the supression of their rights to life and liberty. The same is true, mutatis mutandis, for the monopoly formerly known as intellectual property.

Anonymous said...

It is very difficult to justify monopoly when granted by the government. The fact that it is abused in such a way certainly does not make it is easier to justify...