Galt's Gulch

The Myth That Patents Are Monopolies

Posted by khalling 11 years, 2 months ago to Economics
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Patents: Monopoly or Property Right a Testable Hypothesis http://hallingblog.com/patents-monopoly-...
If patents are a monopoly, as some suggest, then it should lead to certain outcomes. A close examination shows that none of the supposed monopoly effects result from granting patents.

Monopoly/Rent Seeking vs. Property Rights/Intellectual Property http://hallingblog.com/monopolyrent-seek....
This post explains the characteristics of a monopoly and a property right and poses three questions to show the difference. Patents fit all the characteristics of a property right and none of a monopoly. Note that professional license, such as a law license has some of the characteristics of a monopoly.

More on the Myth that Patents are Monopolies http://hallingblog.com/more-on-the-myth-....
This post contains a number of quotes from philosophers explaining that patents are not monopolies.

Property Rights, Possession and Objects http://hallingblog.com/property-rights-p...
This post explains the difference in the concepts of property rights, possession, and objects. Most economists and patent detractors confuse these concepts. The origin, definition, and legal basis of property right are explained.

The Myth That Patents are a Monopoly http://hallingblog.com/the-myth-that-pat...
This post compares the definition of a monopoly to the rights obtained with a patent. It shows that the rights obtained with a patent do not confer a monopoly.

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  • Posted by howeracer 11 years, 2 months ago
    Patents were designed to protect the inventor's investment for a period of time, basically so they could recoup the costs. As a startup business this is very important to me. However, there are "patent trolls" who use vague patents that they never produce as means to extort money from companies who do something as simple as scanning a document and sending it in an email. There needs to be protection for the inventors who actually create something at their expense. In Atlas the inventors spent their own time and money to create something but aren't allowed to recoup or enjoy the fruits of their labor because of the belief that the wealth has to be shared with those who didn't invest time and money.
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    • Posted by khalling 11 years, 2 months ago
      "vague" patent. hmmm. Because our legal system doesn't work well, and people do not respect patents, non-practicing entities with deep pockets are able to scoop up a large number of patents. Remember, Thomas Edison was a non-practicing entity on most of his inventions. It was the purposeful decision of the Founders and consistent with Adam Smith to allow the citizens to specialize being an inventor-not a manufacturer. An inventor need not manufacture, as a writer need not own the publishing company
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      • Posted by richrobinson 11 years, 2 months ago
        What about companies that buy patents with the intention that they never see the light of day. I think we have all heard of engines that should get 100 miles per gallon but oil companies buy the patent so they never get built. Not sure if there is any truth to that but I used it as an example. Should you be allowed to buy a patent so that an invention doesn't get to the people?
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        • Posted by khalling 11 years, 2 months ago
          1. all patents see the light of day, it is part of the process. and they expire within 20 years of the date of file.if there is an engine that can do 100mpg, it is in the public domain, you can look at it, and at a certain point anyone is free to build. and at any time, you can design around it. it is implausible that such an engine exists, and I have physics issues with such a claim currently
          2. "invention gets to the people" is this a greater good argument rich?
          Hank Rearden: "It's mine."
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          • Posted by richrobinson 11 years, 2 months ago
            Damn. I fell into that. I was thinking about the harm done if someone sits on a patent. What if there was a new medical procedure that could save lives and a company bought the patent so their old procedure would still be used. Many would die before the patent expired. It seems that allowing companies to just sit on patents stifles creativity and competition.
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            • Posted by khalling 11 years, 2 months ago
              lol now that can happen and retard the time it might take to get to the market. In Pendulum of Justice we explored that problem, as you know, and focused on inventors losing millions in investment if their patent was "stolen." In fact, the government can do this legally, if they determine your invention is of national security interest (just like AS demonstrates). They will not publish your application of interest and can keep you from selling your invention to anyone but them. It is done all the time.
              The most likely scenario in keeping life saving technologies from the people they could help have to do with how long it can take to get a patent through the system. Some wait a decade or longer. In the case of medical patents, often, these have to also go through the FDA before they can be implemented. That time IS money and LOTS of money has to be invested to get it through the uncertain process which is fraught with the usual bureaucracy and political pitfalls. that is partly why a perscription drug is so pricey.
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            • Posted by Rocky_Road 11 years, 2 months ago
              "What if there was a new medical procedure that could save lives and a company bought the patent so their old procedure would still be used."

              Why wouldn't they buy the patent, and use it to offer both procedures, and really solidify their hold on the market? Once they owned the discovery that they were afraid of, they could market it themselves....
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              • Posted by khalling 11 years, 2 months ago
                The main issue had in bringing new technologies to market is that it's expensive, time-consuming and uncertain about getting the property rights in the invention. most tech start-ups-the main asset IS the technology. then on top of it, the govt passed Sarbanes Oxley (in our book we call this "Truth in Accounting Law")that makes it so expensive to go public -estimates hover around $4M just to comply with Sarbox not to mention other regs- which means it takes the investors and founders as much as a decade longer to get a return. the studies show most of the growth in start-ups happens after they go public, because going public puts money in the company not out of the company.
                Big companies think about market share-they don't like to think about risky, disruptive technologies. it is when they are forced usually by some upstart start-up threatening their market that they will adopt a truly revolutionary technology. Not always, but mostly.
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              • Posted by richrobinson 11 years, 2 months ago
                That's how it should work. I guess my question should something be done if a company buys a patent and does not bring the invention to market. For example, should the patent expire sooner?
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                • Posted by khalling 11 years, 2 months ago
                  The US has looked at that. it is called "A Working Requirement." what it does, gives all the advantage to manufacturers and kills the ability to be an independent inventor. In P of J, if there were a working requirement, EWE Technologies would have lost their patent if things had proceeded without corporate intervention. Trust me, Big business would LOVE to see a working requirement. They don't want engineers to have good options to work for themselves. The companies getting startup monies in this environment are companies getting govt funding and then maybe other investors will come in. Alot of venture capital firms dried up after the passage of SOX. According to the SBA, most disruptive technologies (80%) are invented by individual inventors or startups and they are not yet manufacturing.
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                  • Posted by richrobinson 11 years, 2 months ago
                    Okay I just stepped in another pothole. My rule with government is they can get in the way or get out of the way. I have known for some time that the FDA needed reformed. It sounds like the whole system needs to be re-examined. Unfortunately that usually results in more regs and not less.
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                    • Posted by khalling 11 years, 2 months ago
                      not at all. these are all great questions and possible solutions. I'm impressed you're interested. patent law isn't exactly the most exciting front of mind topic for people, but it is essential to a healthy vibrant economy
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                      • Posted by richrobinson 11 years, 2 months ago
                        One of the things that infuriated me with Obamacare is that no reforms were tried first. Small companies outside the US can have a drug on the market for years but to sell it in the US they have to go thru all the testing from the beginning. It costs millions and there is always a threat one of the "big boys" will steal it and push it thru before they get approval. Its hard when government agencies get corrupted.
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                        • Posted by khalling 11 years, 2 months ago
                          I don't know much about pharma.
                          How many die due to waiting for a new drug to get on the market? This cost is never factored in to the value of the FDA program
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      • Posted by howeracer 11 years, 2 months ago
        A true inventor intends to see his invention produced by himself or through a license. A troll has no intent to ever produce anything it is just a money making scam.
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        • Posted by khalling 11 years, 2 months ago
          this is our business and a "true" inventor wants to see their invention in the marketplace. But if that is not happening, and others steal his invention, he will do what he can to enforce his rights and get a return on his invention. Your analogy would be that a true builder would also wish to lease out all the apts in the building. not the case. Getting a patent is the most expensive, most examined, takes the most time to obtain the property rights of any other property right.
          non practicing entities are trying to get a return on their investment. they are no different than someone owning a stock or bond.
          There are attorneys in all fields of law which take advantage of the system to extract monies from individuals. In patent law, at least, we are talking about a property right. If one were serious about legal scams out there, one would focus on bogus product liability, shareholder derivative suits, med mal scams, etc.
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  • Posted by terrycan 11 years, 2 months ago
    An amazing discussion here. I recommend reading parts of "Patent it Yourself" BTW
    It is all but impossible to have a patent that is a secret.
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    • Posted by khalling 11 years, 2 months ago
      My husband read it just before he finished law school. He says it's an excellent book.
      Understanding claims and how to write them is a very complex process.
      You are right, you cannot have a patent that is secret. Patent means "to lay open"
      one of the purposes of the patent system is to spread knowledge. the alternative historically, has been trade secrets. Guilds held the secrets and in order to learn the secrets of the trade, you had to be a member. This horribly holds back technology
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  • Posted by richrobinson 11 years, 2 months ago
    Very well done!
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    • Posted by khalling 11 years, 2 months ago
      hiraghm got me in gear to post Dale's stuff. "Pendulum of Justice" was our way of illustrating inventors' struggles and the real world consequences of policies consistent with those who feel that patents are monopolies and govt regulating investment
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      • Posted by richrobinson 11 years, 2 months ago
        I have had occasions where someone complained about the cost of something and they would say that it's probably because they have a patent. That generally meant they thought patents were a bad thing. I always said they would think differently if they were the one with the patent. This helps me explain it better. Thanks Kh.
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